Conceptualising Risk and Uncertainty in Decision-Making: A Historical Analysis

Although decisions have been made under risk and uncertainty for thousands of years, theories on decision-making processes started to be formulated once risk and uncertainty were defined. Just as diagnosis is necessary to treat a patient, definition is necessary to theorise and manage a concept. It is not quite possible to manage risks without making a precise distinction between the concepts of uncertainty and risk. The change in the concepts of uncertainty and risk in the last three centuries has also steered the development of decision-making theories. The decision-making process is influenced by emotions, intuitions, personality and experiences. Examining this process under risk and uncertainty also makes it difficult to predict behaviour. This study aims to examine decision-making processes under uncertainty and risk from the perspective of expected utility theory, prospect theory and heuristic approach as well as the effects of cognitive perception and misperceptions on decision-making mechanisms.