Risk Management & Decision-Making Flashcards
7 cards from real CME practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Decision-Making flashcards as text
Which technique requires decision-makers to simulate thousands of possible outcomes by randomly sampling input variables?
Answer: Monte Carlo simulation
Monte Carlo simulation uses random sampling and statistical modeling to estimate the probability distribution of possible outcomes.
Groupthink in executive decision-making is best countered by:
Answer: Assigning a devil's advocate role to challenge consensus
Designating a devil's advocate who is expected to challenge prevailing views helps surface dissenting perspectives and reduce groupthink.
An organization's risk appetite differs from its risk tolerance in that risk appetite:
Answer: Defines the broad level of risk an organization is willing to pursue
Risk appetite is the general amount of risk an organization is willing to accept in pursuit of its objectives, while risk tolerance defines acceptable variance around specific targets.
Which type of risk analysis assigns numerical probabilities and financial values to risk outcomes?
Answer: Quantitative risk analysis
Quantitative risk analysis uses numerical data to assign probabilities and financial impacts, enabling calculation of expected monetary value and other metrics.
The concept of 'black swan' events in risk management refers to:
Answer: Rare, unpredictable events with extreme consequences
Black swan events, as defined by Nassim Taleb, are highly improbable but high-impact occurrences that are rationalized in hindsight but were not anticipated.
A manager who continues funding a failing project because of money already invested is demonstrating:
Answer: The sunk cost fallacy
The sunk cost fallacy occurs when past investments that cannot be recovered irrationally influence future decisions that should be based only on prospective costs and benefits.
In enterprise risk management, reputational risk is most effectively managed through:
Answer: Proactive stakeholder communication and strong corporate governance
Reputational risk is best managed through transparent stakeholder communication, ethical behavior, and governance practices that build trust over time.