Risk Evaluation and Decision Making

The assignment describes a personal scenario where the writer's house is at risk due to a hurricane, but they have to choose between insuring against the hurricane or other potential risks like theft and fire. The writer evaluates the risks and makes a decision based on calculated considerations, rather than just emotions or uncertainty. This approach emphasizes the importance of risk evaluation in decision making and highlights the need for careful consideration of consequences before making a choice.

Running head: DECISION MAKING 1
Decision Making
Name
Institution

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Decision Making
Hicks Patrick, Steele, and Spencer (2013) describes decision making as the process of
making choices among several alternative courses of action. Every decision making process
depends on the information gathered and the chosen alternative can affect the lives of others as
well as one's personality (Tripathi, 2008). As such, increased effectiveness in decision making
can be significant in maximizing effectiveness to the current dilemma. However, before making
any decision, Aven (2016) advises individuals to assess the risk of their possible decision. Such
assertions portray decision making as an important task with severe outcomes if a wrong
decision is made. In this regard, Merlhiot et al. (2017) acknowledge that several factors such as
uncertainty and emotion of the outcome usually influence our decision making.
Decision problem currently struggling with
Currently, I am struggling to make a decision whether to insure my house or not. My
uncle gave me a house before he passed away and I have always contemplated on how to keep
the house safer. I want to make sure that I secure the house against uncertainties of fire, theft and
more so natural disasters like a hurricane. Am indeed in a dilemma of either insuring the
property against fire or Hurricane and theft or invest the money in an income generating activity.
Against this background, I would not wish to lose the only house I own or fail to prevent risks
that could possibly occur.
Moreover, uncertain consequences involved in hurricane incidences complicates the
situation since it is very difficult to predict nature. Ideally, events with uncertain consequences
usually cause counterintuitive effects (Merlhiot et al., 2017). Additionally, fire and theft
incidences too are unpredictable. Nevertheless, theft can be controlled by taking security

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measures to protect the house by installing closed-circuit television (CCTV) and alarm system to
alert me in case of the incident. Unfortunately, fire incidences can be controlled but their nature
is accidental and can cause more damage if it takes place. Without a prompt response, fire can
spread to other properties that can cause double loss.
In this regard, it is very confusing which insurance policy to take into considering since if
either fire or hurricane beckons, they lead to total damage. Due to lack of financial resources, I
am struggling to choose which policy to take. Furthermore, one should take a policy that runs for
twelve months, and with the current changes in climate, a hurricane can dawn within the year,
and thus making it a must priority. But on fire incidences, it is quite unpredictable and the effect
is the same as a hurricane. Interestingly, Lerner et al. (2015) caution making a decision in such
complex situations since the consequences are uncertain that can lead to biased risk perception
and inappropriate decision making. In this circumstance, Starcke and Brand (2012); Dietrich
(2010) suggest that dilemma promotes the use of affect heuristics while making decisions. As
such, am struggling to make a decision to select a suitable and convenient insurance policy since
most policies have limited alternative courses of action.
Decision contexts and objectives
The context of my decision making falls between either to insure against fire or
hurricane. Of note, the basic structure of decision making involves uncertainties, alternatives,
consequences of alternatives and uncertainties, in addition to objectives and preferences to the
decision maker (Eisenführ, Weber & Langer, 2009; Bujar et al. 2017). In essence, important
decisions on applicable alternatives should be made in advance, even though it is the problem I
am currently struggling with. The process of evaluating my option requires that I consider the
objectives as I express the criteria which will reflect my desires concerning the house as I weigh

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alternative options. This process of reviewing decision-making system will position me on a
platform where I can choose the most appropriate alternative under this conflicting, uncertain,
and complex state. In this state of dilemma, I have to make a decision while observing the
following steps as recommended by Al-Tarawneh (2012).
The first step to making effective decision entails identifying the problem, in this case,
the possibility of the house getting damaged by fire, theft, or hurricane. The second step is
gathering relevant information, this includes insurance policies, insurance premium, terms of
payment, and duration. Some other relevant information includes; information about the
hurricane, a possibility of occurrence, and fire remedies. The third course of action is to identify
the alternative course of action (Al-Tarawneh, 2012). These comprise of either taking insurance
policy or not, insure comprehensively or partially, or do more reinforcement against theft by
constructing perimeter wall. After putting down the alternatives, I should then weigh the
evidence and consider the most appropriate as per my objective of protecting the house as long
as possible. Consequently, I am supposed to take action despite being costly or not by
implementing on the agreed terms. Subsequently, I will have to review the decision, whether it is
wrong or not. This may happen after taking an insurance policy against hurricane and upon it
ravaging, and the house gets destroyed and I am compensated for the loss or not. And whether
the house is restored to its original state or not.
The specific decisions am facing currently is whether to insure the house against fire and
theft in addition to hurricane incident. Another decision is the opportunity cost of failing to
insure one policy and a possible loss that can befall me. In the midst of this dilemma, I am also
facing financial uncertainties and the likelihood of fire and theft occurring. In this kind of
situation, my behavior and attitude will play a critical role while aspiring to protect my house

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against the unknown which I have no control over. Some of the thoughts going through my mind
are future regrets, optimistic, and pessimistic ideologies on any of the implemented decision.
Furthermore, I do not have adequate knowledge about when the risks will occur, and it’s quite
costly to obtain such information. With little resources, I am left wondering what to do.
Despite all the uncertainties, I will make an informed decision, probably insuring against
a hurricane, because my nephew's house was destroyed by the hurricane last year and the same
incident may befall me. In another separate incident, my cousin insured his house against fire but
unfortunately, thieves broke into the house while he went on a retreat and stole everything. He
only came back to find his house empty with the main door destroyed. Under such circumstance
of uncertainty with previous of history of relatives, I can only support the observation of
Merlhiot et al. (2017) who observed that emotions, though often times right, it is wise to follow
personal instincts.
Possible consequences
Wu, Olson, and Dolgui (2015) acknowledge that risks are endemic in nearly all aspects of
our lives. Risks may arise from natural sources, for example, the Japanese tsunami of 2011,
Icelandic volcanic eruption in 2010, Hurricane Katrina in 2005, and the Asian tsunami of 2004,
whereas some can be caused by malicious human destruction like the September 11 incident. As
such, any occurrence of risk has consequences that affect our lives both positively or negatively.
And failure to take caution on various risks put our lives and property in danger. Therefore,
taking caution against risk and failure to do so have consequences.
In this scenario I am struggling with, these are the possible consequences. When I insure the
property against the natural calamity, hurricane, I will have to pay a slightly lower premium to

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caution my house against losses which may arise from such damages. Notably, Kunreuther and
Pauly (2004) found out that people have a tendency of failing to purchase insurance policies
associated with natural calamities even though they are aware that such disasters lead to huge
losses and in addition, their terms are favorable. In a bid to perverse my uncle's legacy, I have to
protect the house against unforeseen risks which may rob the house from me. In that regard, I
will have to part with some money to avoid huge losses.
By insurance against the hurricane, I will forgo insuring against theft and fire incidences.
This means that the house is at risks of theft and fire. Both theft and fire can destroy a property
just the same way like a hurricane but I have to choose hurricane over the two. The decision is to
save on paying more premium and avoiding the possibility of not being paid on accounts of
negligence. For example, an insurance company may not compensate me in full on fire and theft
incidences on accounts of negligence, like my cousin who traveled and left the house unattended.
On the other hand, I may insure against hurricane and it does not take place, and unfortunately,
fire breaks out and destroy the house. All things considered, risk evaluation is necessary and
decision making should follow all the steps before settling on one. Because, in every decision,
there are consequences attached to it. It is better to make calculated decision rather than just
making one based on uncertainty and emotions.

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References
Al-Tarawneh, H. A. (2012). The main factors beyond decision making. Journal of Management
Research, 4(1).
Aven, T. (2016). Risk assessment and risk management: Review of recent advances on their
foundation. European Journal of Operational Research, 253(1), 1-13.
Bujar, M., McAuslane, N., Walker, S. R., & Salek, S. (2017). Evaluating Quality of Decision-
Making Processes in Medicines' Development, Regulatory Review, and Health
Technology Assessment: A Systematic Review of the Literature. Frontiers in
pharmacology, 8, 189.
Dietrich, C. (2010). Decision making: factors that influence decision making, heuristics used,
and decision outcomes. Inquiries Journal, 2(02).
Eisenführ, F., Weber, M., & Langer, T. (2009). Rational decision making. Springer.
Hicks Patrick, J., Steele, J. C., & Spencer, S. M. (2013). Decision making processes and
outcomes. Journal of aging research, 2013.
Kunreuther, H., & Pauly, M. (2004). Neglecting disaster: Why don't people insure against large
losses?. Journal of Risk and Uncertainty, 28(1), 5-21.
Lerner, J. S., Li, Y., Valdesolo, P., & Kassam, K. S. (2015). Emotion and decision
making. Annual Review of Psychology, 66.
Merlhiot, G., Mermillod, M., Le Pennec, J. L., & Mondillon, L. (2017). Managing decision-
making with certainty of threat. Journal of Risk Research, 1-11.

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Starcke, K., & Brand, M. (2012). Decision making under stress: a selective review. Neuroscience
& Biobehavioral Reviews, 36(4), 1228-1248.
Tripathi, P. C. (2008). Principles of management. Tata McGraw-Hill Education.
Wu, D., Olson, D. L., & Dolgui, A. (2015). Decision making in enterprise risk management: A
review and introduction to special issue.