Chapter 1 - RISK IN OUR SOCIETY 2004 - RISK IN OUR SOCIETY...

RISK IN OUR SOCIETY
Chapter 1

What is risk?

Uncertainty as to a loss

Note: If the probability of a loss occurring
is 0 or 1, then there is no risk. Rather there
is an “absolute certainty.”

What are the consequences of
risk? (I)

Risk aversion

Slowing or a contraction in the economy

Investors take a “wait and see” attitude in
times of uncertainty

“I am more interested in the return of my
money than in the return on my money.”
Mark Twain

What are the consequences of
risk? (II)

Rising costs of products and services

Step ladder

Doctor’s visit

Limits business investment in order to
maintain cash balances

May limit services to the public

Let’s summarize. What is risk?

It may refer to:

Uncertainty

Doubt

Chance of loss

Object of insurance

Objective Probability

The long-run chance or frequency of an
occurrence
(# of occurrences/# of events)

Examples:

Coin toss

Drawing an ace from a deck of cards

Methods of Determining