Final answer:
Managers use decision-making under uncertainty to assign probabilities to the various possible outcomes of a decision, utilizing intelligence information or business data. As firms grow, extensive availability of information reduces the need for personal knowledge of managers by investors, facilitating financial support from external parties like bondholders and shareholders.
Step-by-step explanation:
When managers know the possible outcomes of a decision and can assign probabilities to each of these outcomes in terms of their likelihood of occurrence in the future, they are engaging in an important aspect of business called decision-making under uncertainty.
This approach is similar to a variety of other fields, such as politicians studying polls to estimate their chances of winning an election or doctors assessing treatment options based on probable results.
In the context of states or firms, the process takes into account available intelligence information or data on company's products, revenues, costs, and profits. This information helps in making strategic decisions that aim to yield the greatest net benefit. If the information is inaccurate, it can lead to suboptimal decisions.
Hence, these decision-making processes are built on the probabilities of different outcomes, weighing the risks and rewards associated with potential actions.
As firms become more established and their strategies are deemed likely to bring future profits, the need for investors to know individual managers personally diminishes.
Availability of detailed company information makes investors, such as bondholders and shareholders, more comfortable in providing financial capital without personal acquaintances with managers.