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

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RISK IN OUR SOCIETY Chapter 1
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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.”
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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
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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
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Let’s summarize. What is risk? It may refer to: Uncertainty Doubt Chance of loss Object of insurance
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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
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Methods of Determining
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