Risk
Risk
Risk
Concept of Risk
People express risk in different ways. To some it the chance or possibility of loss, to
others it may be uncertain situations or deviations or statisticians call dispersion from the
expectations. However in most terminology the tern risk includes exposure to adverse
situations.
According to dictionary meaning “it is the possibility that something unpleasant or
dangerous might happen”
Risk is a condition in which there is a possibility of an adverse deviation from a desired
outcome that is expected or hoped for
Risk may be objective or subjective. Objective risk is defined as the relative variation of
actual loss from the expected loss. Eg. Assume that a property insure has 10000 houses
insured and expected that 100 house burn every year, but only actual occurrence differ in
each year
Subjective risk is uncertainty based on person’s menatal condition or state of mind. Eg .
The possibility of arrest by police when the driver has taken alcohol.
Thus there is no single definition of risk, economists, risk theorist, statisticians and
actuaries have their own definition of risk
But in most of the risky situation two elements are common
1. The outcome is uncertain. ie there is a possibility that one or other may occur
2. Out of the possible outcome, one is unfavorable or not liked by individuals
Risk and Uncertainty
Introduction
In our day to day life, there are many circumstances,
where we have to take risks, which involves exposure to
lose or danger.
Risk can be understood as the potential of loss. It is not
exactly same as uncertainty, which implies the absence
of certainty of the outcome in a particular situation.
There are instances, wherein uncertainty is inherent, with
respect to the forthcoming events, i.e. there is no idea, of
what can happen next.
So, in short, risk describes a situation, in which there is a
chance of loss or danger. Conversely, uncertainty refers to
a condition where you are not sure about the future
outcomes.
We use the terms risk and uncertainty in a single breath,
but there is a difference between them
Definition of Risk
In the ordinary sense, the risk is the outcome of an action taken or not
taken, in a particular situation which may result in loss or gain. It is
termed as a chance or loss or exposure to danger, arising out of
internal or external factors, that can be minimized through preventive
measures.
Comparison
Basis for Comparison Risk Uncertainty
Minimization Yes No