Week 3: Discussion Questions

Week 3: Discussion Questions

1. Before computers were widespread, almost all risk analysis was done without simulation. Therefore, only a handful of scenarios could be formulated to understand the risk of a decision. Typically, a best-case and worst-case scenario was determined and decisions were based on these two scenarios. What are some of the drawbacks of this decision-making approach? Specifically, how does the capability to summarize 1,000s of simulated scenarios improve the approach?

2. By definition, simulations require a distribution to be specified (e.g., normal, Poisson). Many times, the exact distribution to be used is unknown, so it must be assumed. One argument against using simulations to perform risk analysis is that there is no real benefit because the set of assumptions is simply shifted from assumed parameter values to assumed distributions of parameters. Comment on this argument and justify your opinions with reasons, facts, and examples.