The decision managers make vary in risk and uncertainly.Although some managers use these two term interchangeably, they are, in fact, distinct. Frank Knight (1921) suggested long ago that risk refers to situations in which statistical probabilities can be assigned to alternative potential outcomes. the probabilities associated with the outcomes of roulette, for example, are know to individuals in advance. In contrast, uncertainty refers to situations whereby the probability that a particular outcome will occur cannot be determined in advance. A manager, for instance, may be unable articulate the probability that R&D expenditures will increase a firm's sales in five years.
It is important to note, though, that risk and uncertainty are not always objective standards. Specifically, two managers may ascribe differing levels of uncertainty or risk to the same decision. to this end, scholars have examined the role of perceptions in understanding how these characteristics may influence decision (e.g., Weber, Anderson, and Birnbaum, 1992).