Risk and Uncertainty

The standard deviation compares all of the actual outcomes with the
expected value (or mean outcome). It then calculates how far, on average,
the outcomes deviate from the mean.

Gives an idea of the RANGE of profits that may result

The basic idea is that the standard deviation is a measure of VOLATILITY: the more
that actual outcomes vary from the average outcome, the more volatile the
returns and therefore the more risk involved in the investment/decision.

The lower the value of standard deviation the less the possible outcomes deviate from the average andtherefore the less volatile the investment

Compares the standard deviation of the project relative to its mean
Illustrates the trade off between risk and return
Shows how much VARIATION there is compared to the average return level (EV)

The smaller the coefficient of variation, the less dispersed the variable is, and
therefore the least risky.

A long term weighted average result
The sum total of each products outcome multiplied by the associated probabilities
It is not an absolute result, it represents a longer term average if the decision is repeated multiple times.
The result may not even be a "possible" outcome

An expected value condenses all the different possible outcomes into one
overall average result by calculating a single weighted average.
The expected value is not the most likely result. It may not even be a possible
result, but instead it finds the average outcome if the same event was to take
place thousands of times.

risk can be quantified whereas uncertainty means unknown

OPTOMIST - will choose the best possible return

PESSIMIST - will choose the best from the worst outcomes - risk averse

SORE LOSER - minimise regret / minimise opportunity lost

the lowest coefficiant of variation

The smaller the coefficient of variation, the less dispersed the variable is, and
therefore the least risky

the highest possible outcome

the highest EV