640 Class 1 Outline

640 Class 1 Outline - Class 1 Outline Business Finance 640...

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Class 1 Outline Business Finance 640 - Insurance and Risk Winter Quarter, 2008 I. Introductory Comments, Review of Syllabus, Overview of Course Students must master a certain amount of new terminology. Studying risk and insurance is similar to becoming fluent in a foreign language. We start with a simple case, which requires us to build a basic vocabulary. Risk and Insurance are technical subjects that require a basic vocabulary. A. Scooper Dooper Case B. Expected Value Rule C. Petersburg Paradox II. What is Risk? A. Uncertainty Concept—risk traditionally has been defined as uncertainty. B. Objective Risk 1. Defined as the relative variation of actual loss from expected loss 2. Declines as the number of exposure units increases 3. Is measurable by using the standard deviation or coefficient of variation C. Subjective Risk 1. Defined as uncertainty based on one’s mental condition or state of mind 2. Difficult to measure III. Chance of Loss A. Objective Probability 1. A priori—by logical deduction such as in games of chance 2. Empirically—by induction, through analysis of data B. Subjective Probability—a personal estimate of the chance of loss. It need not coincide with objective probability and is influenced by a variety of factors including age, sex, intelligence, education, and personality. C. Chance of Loss Distinguished from Risk—although chance of loss may be the same for two groups, the relative variation of actual loss from expected loss may be quite
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This note was uploaded on 07/17/2008 for the course BUSFIN 640 taught by Professor Krempley during the Winter '08 term at Ohio State.

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640 Class 1 Outline - Class 1 Outline Business Finance 640...

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