CHAPTER TWO 2.0 LITERATURE REVIEW The term literature review according to Saunders et al. (2009; cited in [ CITATION Elv15 \l 1033 ] enables the researcher to gain an insight into other relevant and related research on the specific topic under study and simultaneously provide the basis for conducting further studies or findings. Based on the above stated fact, this particular chapter will review other relevant and related literature or studies conducted by other researchers on this particular topic under study. This chapter will be examining the concept and evolution of risk and risk management, tools or techniques of managing risk, insurance and its role in the economy, and the concept of profitability. 2.1 Theoretical Review 2.1.1 The Concept and Evolution of Risk and Risk Management. The search for new discoveries carries with it inherent possibility of failure, a prospect which may threaten innovators economic and social status. Thus, when charting a course of professional action, individuals inclined to innovate must weigh the odds of their success against the consequence of failure- assessing these probabilities in the light of their own economic, social and psychological needs. When the odds of behavior can be described in term of ‘risk’, when one cannot clearly specify the probabilities of success, the decision to innovate must be made within a context of ‘uncertainty’ [ CITATION Sil83 \l 1033 ]. It therefore seems necessary to define risk with reference to the chance of loss or degree of uncertainty associated with the outcome of an event. In other words, risk may be viewed as when the outcome of an event is unknown but the distribution of the outcomes is known. Risk is characterized with several possible outcomes on the basis of past relevant experience, with assigned probabilities to the outcomes and increases as variability increases. Whereas uncertainty on the other hand is viewed from an angle or spectrum, where both the outcomes and distributions of an event is unknown. Uncertainty is also
characterized by little past experience, thus, difficult to assign probabilities to outcomes. Thus to relate that some amount of uncertainty can be placed on risk but uncertainty cannot be quantified. The concept of risk is believed to have evolved during the period of 1890-1910 out of a controversy amongst economists based on their interest in formulating a satisfactory theory of distribution, relative to who should receive a reward for an exposure to loss (risk-taking) as pertained to profits. This was the maiden wide spread mention of the term in literature, which attracted much attention. One of the first pioneers to discuss this subject was John Haynes of 1895. According to him, the term risk has not acquired any technical meaning or definition, but signifies here as “elsewhere chance of damage or loss” [ CITATION Oli64 \l 1033 ]. Unpredicted drastic markets moves every year for the past decade haunt the global market, and managers everywhere have desperately sought proper risk management techniques to prepare for the subsequent one. Tracking the evolution of risk management, significant improvements have
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