Information Rule
Information rules specify the conditions under which the state of information is changed. Such information might be the outcome of a decision or uncertainty, or the amount of a
given payoff. Rules are specified in an “if-then” form, e.g. “If it is the beginning of the 3rd quarter and manufacturing is not at full capacity, then decide whether
to expand capacity.
Market
The Market is the aggregate of the global markets. The Market’s dynamics and risk/reward profile are determined by the actions and inactions of shareholders and
potential shareholders around the globe. The Market represents the aggregate portfolio of every potential shareholder in the
world. See The Market.
Market Risk (Shareholder Risk)
For public corporations, shareholder risk is equivalent to Market risk. Market risk is the risk to the
shareholders’ portfolio that comes from global, systemic risks that cannot be diversified. Any corporate valuation
based on an uncertainty that has a relationship with the Market would therefore also contain Market risk. For example, if future product demand is positively correlated with the
market, then Market risk is increased, because when sales revenue from that product is lower, the Market (and hence the shareholders’ portfolios) tend to be lower as well.
Model Properties
The parameters of the model, such as the expected product demand at the start of the model, the ending time of the model, or revenue per sale.
Payoff
Payoffs are changes in True Shareholder Value. Revenue, costs, and taxes are all examples of payoffs.
Probability
The number between 0 and 1 (or 0% and 100%) representing the degree of evidence that a particular outcome will occur. Probabilities (and more generally, probability distributions) are the
numerical representation of your information.
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Qualitative
Qualitative is a model property that can be set to describe the method used by the model-builder while choosing how to
model uncertainties. Nearly all of the time, the Qualitative property for models built on the Provisdom Decision Platform is set to “Maximum Information”, though occasionally
advanced models arise in which another setting is appropriate. See Qualitative for more information.
Shareholder Value
Shareholder value is the cash-in-hand value to a particular shareholder of anything that can be valued regarding the company (the company itself, a
division of the company, a project, etc.). It is uniquely determined by a state of information and that particular
shareholder’s current situation, portfolio, and risk/reward profile. Different relevant information will generally result in different calculated values.
State Variable
State variables hold values that define states of information in the model, typically things like time and the outcomes of decisions or uncertainties. Examples include current
product price and expected demand.
True Shareholder Value
With publicly-traded corporations, shareholders’ information is generally more limited than the corporation’s. The fiduciary duty of publicly-traded corporations is to maximize
True Shareholder Value, where True Shareholder Value is the value the Market would place on the corporation if the Market had the same information as the corporation’s
insiders. True Shareholder Value is the Market’s shareholder value with a comprehensive view, including any available inside
information. See True Shareholder Value.
Uncertainty
Uncertainty reflects limited information about the future, such as future product sales, the possibility of regulatory changes, etc. Provisdom’s system allows you to specify
the information you have, in the form you have it.
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