Risk analysis

- So if you've got to choose between two or more options…and let's say some are more risky than others,…but will have a bigger payoff if they turn out okay…how can you make this decision in a scientific way?…And how can you justify that decision to other people…who want to know why you made it?…And by the way, it will almost always be the case…that the more risky options will have higher payoffs,…because you wouldn't consider a more risky option…unless it was higher paying.…But how to make the decision on whether to play safe…or take the risk?…Well, the easiest way to allow for risk…in your calculations is to multiply…the value of the expected outcome by the risk.…

The expected value is the amount you'll get if you succeed…multiplied by the probability.…So, for example, you might risk taking an expensive flight…to see a potential customer…and the expected value is the amount…of profit you'd make if you get the deal…times the probability of getting the deal.…Or you might risk money on advertising…in order to maybe make a profitable sale.…