anyone know, does decision risk increase with the illiquidity of the investment?
How do we know which asset classes have greater decision risk?
Not relevant for the exam, move on
It should. Decision risk refers to risk of abandoning strategy at max loss. The more illiquid an asset is, the more loss you’ll probably experience when trying to liquidate that position.
I would assume asset classes with highest risk/volatility and highest illiquidity would have greater decision risk.
Decision risk relates to selling at the most inopportune time. If the alt investment has a lockup period of say, 3 years but would take minimal 5-7 years to realize the profits; then the the investor wants to sell after those 3 years…this hurts the investment as a whole because it has not had time to realize the profit and is being forced to be sold.
Liquidity in this sense relates to the fact that you want liquidity when its not favorable to sell.Focus on what the text actually says though which is summarized by my first statement.
I agree with nodaysoff on what decision risk is however, having a lockup period helps decision risk because investors cannot sell during these inopportune times.
Lock up period = less decision risk
No lock period = more decision risk
I have seen a question somewhere asking why a lockup period would actually be a benefit to an investor.
Every manager wants a lockup until they realize gains . Every investor wants a lockup until they see losses 
Lockup is beneficial for the firm because it allows them to better prepare for withdrawals. If they have a lockup period then they don’t need to worry about unwinding positions and liquifying holdings in order to meet those claims. If they were forced to do so, it can hurt the long term prospects. Also been shown empirically that HF with longer lockup periods tend to do better.