A Study of Business Decisions under Uncertainty: The Probability of the Improbable

Abstract

This dissertation will discuss the uncertainty encountered in the daily operations of businesses. The concepts will be developed by first giving an overview of probability and statistics as used in our everyday activities, such as the basic principles of probability, univariate and multivariate statistics, data clustering and mapping, as well as time sequence and spectral analysis.

The examples used will be from the oil and gas exploration industry because the risks taken in this industry are normally quite large and are ideal for showing the application of the various techniques for minimizing risk.

Subsequently, the discussion will deal with basic risk analysis, spatial and time variations of risk, geotechnical risk analysis, risk aversion and how it is affected by personal biases, and how to use portfolios to hedge risk together with the application of real options.

Next, fractal analysis and its application to economics and risk analysis will be examined, followed by some examples showing the change in the Value at Risk under Fractal Brownian Motions. Finally, a neural network application is shown whereby some of these risks and risk factors will be combined to forecast the best possible outcome given a certain knowledge base.

The chapters will discuss:
• Basic probability techniques and uncertainty principles
• Analysis and diversification for exploration projects
• The value and risk of information in the decision process
• Simulation techniques and modeling of uncertainty
• Project valuation and project risk return
• Modeling risk propensity or preference analysis of exploration projects
• Application of fractals to risk analysis
• Simultaneous prediction of strategic risk and decision attributes using multivariate statistics and neural networks

About the Author

Andreas Stark is a Risk Analyst and a Consultant Exploration Specialist and Trainer with interdisciplinary qualifications who is also an award-winning author. He has a Ph.D. in Risk Analysis, a Ph.D. in Exploration Technology Training, a M.Sc. with Distinction in Applied Geology, and a B.Sc. in Pure Mathematics with minors in Computer Science and Economics. Dr. Stark has over forty years of practical exploration experience, including working as a seismic observer in the field, performing aeromagnetic data reduction, processing seismic data, performing signal analysis research and programming, and over 26 years of active interpretation in exploration and development geophysics in both technical and managerial positions. He also has extensive experience with teaching the geosciences for over 16 years. He is a member of the following professional societies: Text and Academic Authors Association, Association of Professional Engineers, Geologists and Geophysicists of Alberta, Society of Exploration Geophysicists, Canadian Society of Exploration Geophysicists, Canadian Society of Petroleum Geologists, American Association of Petroleum Geologists, and the European Association of Geoscientists and Engineers.