Chapter 2 presents the concept of time discounting which enables us to appropriately weigh together incomes and outgoes in various future periods, and then add the set of them into a single overall sum. This idea is at the core of decisions about investments and other actions taken in the present that will have ramifications long into the future. It is the single most important and powerful idea in all of managerial decision-making. But they are difficult to handle psychologically and organizationally, which often causes firms and individuals to reach disastrously wrong decisions. Chapter 3 describes devices to avoid these cost pitfalls.
Uncertainty is a key difficulty in decision-making.
Chapter 4 presents intellectual machinery for dealing with uncertainty in a systematic fashion when valuing and comparing alternatives. People sometimes enjoy uncertainty, and some even are willing to pay for it in gambling. More commonly, though, uncertainty is a negative consequence that people will purchase insurance to avoid. Chapter 5 explains how to allow for risk when you prefer avoiding uncertainty. The cost-benefit analysis presented in Chapters 1 to 5 presupposes that you have a single criterion of success on which to compare the various alternatives.