# Risk

In simple terms, risk is the possibility of something bad happening.[1] Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences.[2] Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is “effect of uncertainty on objectives”.[3]

The understanding of risk, the common methods of analysis and assessment, the measurements of risk and even the definition of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc).

## Definitions

Firefighters at work

### Oxford English Dictionary

The Oxford English Dictionary (OED) cites the earliest use of the word in English (in the spelling of risque from its French original, 'risque') as of 1621, and the spelling as risk from 1655. While including several other definitions, the OED 3rd edition defines risk as:

(Exposure to) the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.[4]

The Cambridge Advanced Learner’s Dictionary gives a simple summary, defining risk as “the possibility of something bad happening”.[1]

### International Organization for Standardization

The International Organization for Standardization (ISO) Guide 73 provides basic vocabulary to develop common understanding on risk management concepts and terms across different applications. ISO Guide 73:2009 defines risk as:

effect of uncertainty on objectives

Note 1: An effect is a deviation from the expected – positive or negative.

Note 2: Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process).

Note 3: Risk is often characterized by reference to potential events and consequences or a combination of these.

Note 4: Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) and the associated likelihood of occurrence.

Note 5: Uncertainty is the state, even partial, of deficiency of information related to, understanding or knowledge of, an event, its consequence, or likelihood.[3]

This definition was developed by an international committee representing over 30 countries and is based on the input of several thousand subject matter experts. It was first adopted in 2002. Its complexity reflects the difficulty of satisfying fields that use the term risk in different ways. Some restrict the term to negative impacts (“downside risks”), while others include positive impacts (“upside risks”).

ISO 31000:2018 “Risk management — Guidelines” uses the same definition with a simpler set of notes.[5]

### Other

Many other definitions of risk have been influential:

“Source of harm”. The earliest use of the word “risk” was as a synonym for the much older word “hazard”, meaning a potential source of harm. This definition comes from Blount’s “Glossographia” (1661)[6] and was the main definition in the OED 1st (1914) and 2nd (1989) editions. Modern equivalents refer to “unwanted events” [7] or “something bad that might happen”.[1]
“Chance of harm”. This definition comes from Johnson’s “Dictionary of the English Language” (1755), and has been widely paraphrased, including “possibility of loss” [8] or “probability of unwanted events”.[7]
“Uncertainty about loss”. This definition comes from Willett’s “Economic Theory of Risk and Insurance” (1901).[9] This links “risk” to “uncertainty”, which is a broader term than chance or probability.
“Measurable uncertainty”. This definition comes from Knight’s “Risk, Uncertainty and Profit” (1921).[10] It allows “risk” to be used equally for positive and negative outcomes. In insurance, risk involves situations with unknown outcomes but known probability distributions.[11]
“Variance of return”. This definition comes from Markovitz’s “Portfolio Selection” (1952).[12] In practice, risk was measured using the standard deviation of returns.[7]
“Statistically expected loss”. The probability of an event multiplied by its magnitude was proposed as a definition of risk by the US Nuclear Regulatory Commission (1975),[13] and remains widely used.[7] It is properly known as the ‘expectation value’.
“Likelihood and severity of events”. The “triplet” definition of risk as “scenarios, probabilities and consequences” was proposed by Kaplan & Garrick (1981).[14] Many definitions refer to the likelihood/probability of events/effects/losses of different severity/consequence, e.g. ISO Guide 73 Note 4.[3]
“Consequences and associated uncertainty”. This was proposed by Kaplan & Garrick (1981).[14] This definition is preferred in Bayesian analysis, which sees risk as the combination of events and uncertainties about them.[15]
“Uncertain events affecting objectives”. This definition was adopted by the Association for Project Management (1997).[16][17] With slight rewording it became the definition in ISO Guide 73.[3]
“Uncertainty of outcome”. This definition was adopted by the UK Cabinet Office (2002)[18] to encourage innovation to improve public services. It allowed “risk” to describe either “positive opportunity or negative threat of actions and events”.
“Human interaction with uncertainty”. This definition comes from Cline (2015)[19] in the context of adventure education.

Some resolve these differences by arguing that the definition of risk is subjective. For example:

No definition is advanced as the correct one, because there is no one definition that is suitable for all problems. Rather, the choice of definition is a political one, expressing someone’s views regarding the importance of different adverse effects in a particular situation.[20]

The Society for Risk Analysis concludes that “experience has shown that to agree on one unified set of definitions is not realistic”. The solution is “to allow for different perspectives on fundamental concepts and make a distinction between overall qualitative definitions and their associated measurements.”[2]

## Practice areas

The understanding of risk, the common methods of management, the measurements of risk and even the definition of risk differ in different practice areas. This section provides links to more detailed articles on these areas.

Business risks arise from uncertainty about the profit of a commercial business due to unwanted events such as changes in tastes, changing preferences of consumers, strikes, increased competition, changes in government policy, obsolescence etc.

Business risks are controlled using techniques of risk management. In many cases they may be managed by intuitive steps to prevent or mitigate risks, by following regulations or standards of good practice, or by insurance. Enterprise risk management includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives.

### Economic risk

Economics is concerned with the production, distribution and consumption of goods and services. Economic risk arises from uncertainty about economic outcomes. For example, economic risk may be the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment or a company’s prospects.[21]

In economics, as in finance, risk is often defined as quantifiable uncertainty about gains and losses.

### Environmental risk

Environmental risk arises from environmental hazards or environmental issues.

In the environmental context, risk is defined as “The chance of harmful effects to human health or to ecological systems”.[22]

Environmental risk assessment aims to assess the effects of stressors, often chemicals, on the local environment.[23]

### Financial risk

Finance is concerned with money management and acquiring funds.[24] Financial risk arises from uncertainty about financial returns. It includes market risk, credit risk, liquidity risk and operational risk.

In finance, risk is the possibility that the actual return on an investment will be different from its expected return.[25] This includes not only "downside risk" (returns below expectations, including the possibility of losing some or all of the original investment) but also "upside risk" (returns that exceed expectations). In Knight’s definition, risk is often defined as quantifiable uncertainty about gains and losses. This contrasts with Knightian uncertainty, which cannot be quantified.

Financial risk modeling determines the aggregate risk in a financial portfolio. Modern portfolio theory measures risk using the variance (or standard deviation) of asset prices. More recent risk measures include value at risk.

Because investors are generally risk averse, investments with greater inherent risk must promise higher expected returns.[26]

Financial risk management uses financial instruments to manage exposure to risk. It includes the use of a hedge to offset risks by adopting a position in an opposing market or investment.

In financial audit, audit risk refers to the potential that an audit report may failure to detect material misstatement either due to error or fraud.

### Health risk

Health risks arise from disease and other biological hazards.

Epidemiology is the study and analysis of the distribution, patterns and determinants of health and disease. It is a cornerstone of public health, and shapes policy decisions by identifying risk factors for disease and targets for preventive healthcare.

In the context of public health, risk assessment is the process of characterizing the nature and likelihood of a harmful effect to individuals or populations from certain human activities. Health risk assessment can be mostly qualitative or can include statistical estimates of probabilities for specific populations.

A health risk assessment (also referred to as a health risk appraisal and health & well-being assessment) is a questionnaire screening tool, used to provide individuals with an evaluation of their health risks and quality of life

### Health, safety, and environment risks

Health, safety, and environment (HSE) are separate practice areas; however, they are often linked. The reason is typically to do with organizational management structures; however, there are strong links among these disciplines. One of the strongest links is that a single risk event may have impacts in all three areas, albeit over differing timescales. For example, the uncontrolled release of radiation or a toxic chemical may have immediate short-term safety consequences, more protracted health impacts, and much longer-term environmental impacts. Events such as Chernobyl, for example, caused immediate deaths, and in the longer term, deaths from cancers, and left a lasting environmental impact leading to birth defects, impacts on wildlife, etc.

### Information technology risk

Information technology (IT) is the use of computers to store, retrieve, transmit, and manipulate data. IT risk (or cyber risk) arises from the potential that a threat may exploit a vulnerability to breach security and cause harm. IT risk management applies risk management methods to IT to manage IT risks. Computer security is the protection of IT systems by managing IT risks.

Information security is the practice of protecting information by mitigating information risks. While IT risk is narrowly focused on computer security, information risks extend to other forms of information (paper, microfilm).

### Insurance risk

Insurance is a risk treatment option which involves risk sharing. It can be considered as a form of contingent capital and is akin to purchasing an option in which the buyer pays a small premium to be protected from a potential large loss.

Insurance risk is often taken by insurance companies, who then bear a pool of risks including market risk, credit risk, operational risk, interest rate risk, mortality risk, longevity risks, etc.[27]

The term “risk” has a long history in insurance and has acquired several specialised definitions, including “the subject-matter of an insurance contract”, “an insured peril” as well as the more common “possibility of an event occurring which causes injury or loss”.[28]

### Occupational risk

Occupational health and safety is concerned with occupational hazards experienced in the workplace.

The Occupational Health and Safety Assessment Series (OHSAS) standard OHSAS 18001 in 1999 defined risk as the “combination of the likelihood and consequence(s) of a specified hazardous event occurring”. In 2018 this was replaced by ISO 45001 “Occupational health and safety management systems”, which use the ISO Guide 73 definition.

### Project risk

A project is an individual or collaborative undertaking planned to achieve a specific aim. Project risk is defined as, "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives”. Project risk management aims to increase the likelihood and impact of positive events and decrease the likelihood and impact of negative events in the project.[29]

### Safety risk

Safety is concerned with a variety of hazards that may result in accidents causing harm to people, property and the environment. In the safety field, risk is typically defined as the “likelihood and severity of hazardous events”. Safety risks are controlled using techniques of risk management.

A high reliability organisation (HRO) involves complex operations in environments where catastrophic accidents could occur. Examples include aircraft carriers, air traffic control, aerospace and nuclear power stations. Some HROs manage risk in a highly quantified way. The technique is usually referred to as probabilistic risk assessment (PRA). See WASH-1400 for an example of this approach. The incidence rate can also be reduced due to the provision of better occupational health and safety programmes [30]

### Security risk

AT YOUR OWN RISK
Popular labelling

Security is freedom from, or resilience against, potential harm caused by others.

A security risk is "any event that could result in the compromise of organizational assets i.e. the unauthorized use, loss, damage, disclosure or modification of organizational assets for the profit, personal interest or political interests of individuals, groups or other entities."[31]

Security risk management involves protection of assets from harm caused by deliberate acts.

## Risk assessment and analysis

Since risk assessment and management is essential in security management, both are tightly related. Security assessment methodologies like CRAMM contain risk assessment modules as an important part of the first steps of the methodology. On the other hand, risk assessment methodologies like Mehari evolved to become security assessment methodologies. An ISO standard on risk management (Principles and guidelines on implementation) was published under code ISO 31000 on 13 November 2009.

### Mild Versus Wild Risk

Benoit Mandelbrot distinguished between "mild" and "wild" risk and argued that risk assessment and analysis must be fundamentally different for the two types of risk.[32] Mild risk follows normal or near-normal probability distributions, is subject to regression to the mean and the law of large numbers, and is therefore relatively predictable. Wild risk follows fat-tailed distributions, e.g., Pareto or power-law distributions, is subject to regression to the tail (infinite mean or variance, rendering the law of large numbers invalid or ineffective), and is therefore difficult or impossible to predict. A common error in risk assessment and analysis is to underestimate the wildness of risk, assuming risk to be mild when in fact it is wild, which must be avoided if risk assessment and analysis are to be valid and reliable, according to Mandelbrot.

### Quantitative analysis

There are many formal methods used to "measure" risk.

Often the probability of a negative event is estimated by using the frequency of past similar events. Probabilities for rare failures may be difficult to estimate. This makes risk assessment difficult in hazardous industries, for example nuclear energy, where the frequency of failures is rare, while harmful consequences of failure are severe.

Statistical methods may also require the use of a cost function, which in turn may require the calculation of the cost of loss of a human life. This is a difficult problem. One approach is to ask what people are willing to pay to insure against death[33] or radiological release (e.g. GBq of radio-iodine),[citation needed] but as the answers depend very strongly on the circumstances it is not clear that this approach is effective.

Risk is often measured as the expected value of an undesirable outcome. This combines the probabilities of various possible events and some assessment of the corresponding harm into a single value. See also Expected utility. The simplest case is a binary possibility of Accident or No accident. The associated formula for calculating risk is then:

${\displaystyle {\text{R}}=({\text{probability of the accident occurring}})\times ({\text{expected loss in case of the accident}})}$

For example, if performing activity X has a probability of 0.01 of suffering an accident of A, with a loss of 1000, then total risk is a loss of 10, the product of 0.01 and 1000.

Situations are sometimes more complex than the simple binary possibility case. In a situation with several possible accidents, total risk is the sum of the risks for each different accident, provided that the outcomes are comparable:

${\displaystyle {\text{R}}=\sum _{\text{For all accidents}}({\text{probability of the accident occurring}})\times ({\text{expected loss in case of the accident}})}$

For example, if performing activity X has a probability of 0.01 of suffering an accident of A, with a loss of 1000, and a probability of 0.000001 of suffering an accident of type B, with a loss of 2,000,000, then total loss expectancy is 12, which is equal to a loss of 10 from an accident of type A and 2 from an accident of type B.

One of the first major uses of this concept was for the planning of the Delta Works in 1953, a flood protection program in the Netherlands, with the aid of the mathematician David van Dantzig.[34] The kind of risk analysis pioneered there has become common today in fields like nuclear power, aerospace and the chemical industry.

In statistical decision theory, the risk function is defined as the expected value of a given loss function as a function of the decision rule used to make decisions in the face of uncertainty.

### Fear as intuitive risk assessment

People may rely on their fear and hesitation to keep them out of the most profoundly unknown circumstances. Fear is a response to perceived danger. Risk could be said to be the way we collectively measure and share this "true fear"—a fusion of rational doubt, irrational fear, and a set of unquantified biases from our own experience.

The field of behavioural finance focuses on human risk-aversion, asymmetric regret, and other ways that human financial behaviour varies from what analysts call "rational". Risk in that case is the degree of uncertainty associated with a return on an asset. Recognizing and respecting the irrational influences on human decision making may do much to reduce disasters caused by naive risk assessments that presume rationality but in fact merely fuse many shared biases.

## Anxiety, risk and decision making

### Fear, anxiety and risk

According to one set of definitions, fear is a fleeting emotion ascribed to a particular object, while anxiety is a trait of fear (this is referring to "trait anxiety", as distinct from how the term "anxiety" is generally used) that lasts longer and is not attributed to a specific stimulus (these particular definitions are not used by all authors cited on this page).[35] Some studies show a link between anxious behaviour and risk (the chance that an outcome will have an unfavorable result).[36] Joseph Forgas introduced valence based research where emotions are grouped as either positive or negative (Lerner and Keltner, 2000). Positive emotions, such as happiness, are believed to have more optimistic risk assessments and negative emotions, such as anger, have pessimistic risk assessments. As an emotion with a negative valence, fear, and therefore anxiety, has long been associated with negative risk perceptions. Under the more recent appraisal tendency framework of Jennifer Lerner et al., which refutes Forgas' notion of valence and promotes the idea that specific emotions have distinctive influences on judgments, fear is still related to pessimistic expectations.[37]

Psychologists have demonstrated that increases in anxiety and increases in risk perception are related and people who are habituated to anxiety experience this awareness of risk more intensely than normal individuals.[38] In decision-making, anxiety promotes the use of biases and quick thinking to evaluate risk. This is referred to as affect-as-information according to Clore, 1983. However, the accuracy of these risk perceptions when making choices is not known.[39]

### Consequences of anxiety

Experimental studies show that brief surges in anxiety are correlated with surges in general risk perception.[39] Anxiety exists when the presence of threat is perceived (Maner and Schmidt, 2006).[38] As risk perception increases, it stays related to the particular source impacting the mood change as opposed to spreading to unrelated risk factors.[39] This increased awareness of a threat is significantly more emphasised in people who are conditioned to anxiety.[40] For example, anxious individuals who are predisposed to generating reasons for negative results tend to exhibit pessimism.[40] Also, findings suggest that the perception of a lack of control and a lower inclination to participate in risky decision-making (across various behavioural circumstances) is associated with individuals experiencing relatively high levels of trait anxiety.[38] In the previous instance, there is supporting clinical research that links emotional evaluation (of control), the anxiety that is felt and the option of risk avoidance.[38]

There are various views presented that anxious/fearful emotions cause people to access involuntary responses and judgments when making decisions that involve risk. Joshua A. Hemmerich et al. probes deeper into anxiety and its impact on choices by exploring "risk-as-feelings" which are quick, automatic, and natural reactions to danger that are based on emotions. This notion is supported by an experiment that engages physicians in a simulated perilous surgical procedure. It was demonstrated that a measurable amount of the participants' anxiety about patient outcomes was related to previous (experimentally created) regret and worry and ultimately caused the physicians to be led by their feelings over any information or guidelines provided during the mock surgery. Additionally, their emotional levels, adjusted along with the simulated patient status, suggest that anxiety level and the respective decision made are correlated with the type of bad outcome that was experienced in the earlier part of the experiment.[41] Similarly, another view of anxiety and decision-making is dispositional anxiety where emotional states, or moods, are cognitive and provide information about future pitfalls and rewards (Maner and Schmidt, 2006). When experiencing anxiety, individuals draw from personal judgments referred to as pessimistic outcome appraisals. These emotions promote biases for risk avoidance and promote risk tolerance in decision-making.[40]

It is common for people to dread some risks but not others: They tend to be very afraid of epidemic diseases, nuclear power plant failures, and plane accidents but are relatively unconcerned about some highly frequent and deadly events, such as traffic crashes, household accidents, and medical errors. One key distinction of dreadful risks seems to be their potential for catastrophic consequences,[42] threatening to kill a large number of people within a short period of time.[43] For example, immediately after the 11 September attacks, many Americans were afraid to fly and took their car instead, a decision that led to a significant increase in the number of fatal crashes in the time period following the 9/11 event compared with the same time period before the attacks.[44][45]

Different hypotheses have been proposed to explain why people fear dread risks. First, the psychometric paradigm[42] suggests that high lack of control, high catastrophic potential, and severe consequences account for the increased risk perception and anxiety associated with dread risks. Second, because people estimate the frequency of a risk by recalling instances of its occurrence from their social circle or the media, they may overvalue relatively rare but dramatic risks because of their overpresence and undervalue frequent, less dramatic risks.[45] Third, according to the preparedness hypothesis, people are prone to fear events that have been particularly threatening to survival in human evolutionary history.[46] Given that in most of human evolutionary history people lived in relatively small groups, rarely exceeding 100 people,[47] a dread risk, which kills many people at once, could potentially wipe out one's whole group. Indeed, research found[48] that people's fear peaks for risks killing around 100 people but does not increase if larger groups are killed. Fourth, fearing dread risks can be an ecologically rational strategy.[49] Besides killing a large number of people at a single point in time, dread risks reduce the number of children and young adults who would have potentially produced offspring. Accordingly, people are more concerned about risks killing younger, and hence more fertile, groups.[50]

### Anxiety and judgmental accuracy

The relationship between higher levels of risk perception and "judgmental accuracy" in anxious individuals remains unclear (Joseph I. Constans, 2001). There is a chance that "judgmental accuracy" is correlated with heightened anxiety. Constans conducted a study to examine how worry propensity (and current mood and trait anxiety) might influence college student's estimation of their performance on an upcoming exam, and the study found that worry propensity predicted subjective risk bias (errors in their risk assessments), even after variance attributable to current mood and trait anxiety had been removed.[39] Another experiment suggests that trait anxiety is associated with pessimistic risk appraisals (heightened perceptions of the probability and degree of suffering associated with a negative experience), while controlling for depression.[38]

### Human factors

One of the growing areas of focus in risk management is the field of human factors where behavioural and organizational psychology underpin our understanding of risk based decision making. This field considers questions such as "how do we make risk based decisions?", "why are we irrationally more scared of sharks and terrorists than we are of motor vehicles and medications?"

In decision theory, regret (and anticipation of regret) can play a significant part in decision-making, distinct from risk aversion[51][52](preferring the status quo in case one becomes worse off).

Framing[53] is a fundamental problem with all forms of risk assessment. In particular, because of bounded rationality (our brains get overloaded, so we take mental shortcuts), the risk of extreme events is discounted because the probability is too low to evaluate intuitively. As an example, one of the leading causes of death is road accidents caused by drunk driving – partly because any given driver frames the problem by largely or totally ignoring the risk of a serious or fatal accident.

For instance, an extremely disturbing event (an attack by hijacking, or moral hazards) may be ignored in analysis despite the fact it has occurred and has a nonzero probability. Or, an event that everyone agrees is inevitable may be ruled out of analysis due to greed or an unwillingness to admit that it is believed to be inevitable. These human tendencies for error and wishful thinking often affect even the most rigorous applications of the scientific method and are a major concern of the philosophy of science.

All decision-making under uncertainty must consider cognitive bias, cultural bias, and notational bias: No group of people assessing risk is immune to "groupthink": acceptance of obviously wrong answers simply because it is socially painful to disagree, where there are conflicts of interest.

Framing involves other information that affects the outcome of a risky decision. The right prefrontal cortex has been shown to take a more global perspective[54] while greater left prefrontal activity relates to local or focal processing.[55]

From the Theory of Leaky Modules[56] McElroy and Seta proposed that they could predictably alter the framing effect by the selective manipulation of regional prefrontal activity with finger tapping or monaural listening.[57] The result was as expected. Rightward tapping or listening had the effect of narrowing attention such that the frame was ignored. This is a practical way of manipulating regional cortical activation to affect risky decisions, especially because directed tapping or listening is easily done.

### Psychology of risk taking

A growing area of research has been to examine various psychological aspects of risk taking. Researchers typically run randomised experiments with a treatment and control group to ascertain the effect of different psychological factors that may be associated with risk taking. Thus, positive and negative feedback about past risk taking can affect future risk taking. In an experiment, people who were led to believe they are very competent at decision making saw more opportunities in a risky choice and took more risks, while those led to believe they were not very competent saw more threats and took fewer risks.[58]

## Other considerations

### Risk and uncertainty

In his seminal work Risk, Uncertainty, and Profit, Frank Knight (1921) established the distinction between risk and uncertainty.

... Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term "risk," as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. ... The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. ... It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We ... accordingly restrict the term "uncertainty" to cases of the non-quantitive type.:[59]

Thus, Knightian uncertainty is immeasurable, not possible to calculate, while in the Knightian sense risk is measurable.

Another distinction between risk and uncertainty is proposed by Douglas Hubbard:[60][61]

Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility. The "true" outcome/state/result/value is not known.
Measurement of uncertainty: A set of probabilities assigned to a set of possibilities. Example: "There is a 60% chance this market will double in five years"
Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.
Measurement of risk: A set of possibilities each with quantified probabilities and quantified losses. Example: "There is a 40% chance the proposed oil well will be dry with a loss of $12 million in exploratory drilling costs". In this sense, one may have uncertainty without risk but not risk without uncertainty. We can be uncertain about the winner of a contest, but unless we have some personal stake in it, we have no risk. If we bet money on the outcome of the contest, then we have a risk. In both cases there are more than one outcome. The measure of uncertainty refers only to the probabilities assigned to outcomes, while the measure of risk requires both probabilities for outcomes and losses quantified for outcomes. ### Risk attitude, appetite and tolerance The terms risk attitude, appetite, and tolerance are often used similarly to describe an organisation's or individual's attitude towards risk-taking. One's attitude may be described as risk-averse, risk-neutral, or risk-seeking. Risk tolerance looks at acceptable/unacceptable deviations from what is expected.[clarification needed] Risk appetite looks at how much risk one is willing to accept. There can still be deviations that are within a risk appetite. For example, recent research finds that insured individuals are significantly likely to divest from risky asset holdings in response to a decline in health, controlling for variables such as income, age, and out-of-pocket medical expenses.[62] Gambling is a risk-increasing investment, wherein money on hand is risked for a possible large return, but with the possibility of losing it all. Purchasing a lottery ticket is a very risky investment with a high chance of no return and a small chance of a very high return. In contrast, putting money in a bank at a defined rate of interest is a risk-averse action that gives a guaranteed return of a small gain and precludes other investments with possibly higher gain. The possibility of getting no return on an investment is also known as the rate of ruin. Risk compensation is a theory which suggests that people typically adjust their behavior in response to the perceived level of risk, becoming more careful where they sense greater risk and less careful if they feel more protected.[63] By way of example, it has been observed that motorists drove faster when wearing seatbelts and closer to the vehicle in front when the vehicles were fitted with anti-lock brakes. ### Risk as a vector quantity Hubbard also argues that defining risk as the product of impact and probability presumes, unrealistically, that decision-makers are risk-neutral.[61] A risk-neutral person's utility is proportional to the expected value of the payoff. For example, a risk-neutral person would consider 20% chance of winning$1 million exactly as desirable as getting a certain $200,000. However, most decision-makers are not actually risk-neutral and would not consider these equivalent choices. This gave rise to prospect theory and cumulative prospect theory. Hubbard proposes to instead describe risk as a vector quantity that distinguishes the probability and magnitude of a risk. Risks are simply described as a set or function[vague] of possible payoffs (gains or losses) with their associated probabilities. This array is collapsed into a scalar value according to a decision-maker's risk tolerance. ### Risk and autonomy in human services The experience of many people who rely on human services for support is that 'risk' is often used as a reason to prevent them from gaining further independence or fully accessing the community, and that these services are often unnecessarily risk averse.[64] "People's autonomy used to be compromised by institution walls, now it's too often our risk management practices", according to John O'Brien.[65] Michael Fischer and Ewan Ferlie (2013) find that contradictions between formal risk controls and the role of subjective factors in human services (such as the role of emotions and ideology) can undermine service values, so producing tensions and even intractable and 'heated' conflict.[66] ## List of related books This is a list of books about risk issues. Title Author(s) Year Acceptable Risk Baruch Fischhoff, Sarah Lichtenstein, Paul Slovic, Steven L. Derby, and Ralph Keeney 1984 Against the Gods: The Remarkable Story of Risk Peter L. Bernstein 1996 At risk: Natural hazards, people's vulnerability and disasters Piers Blaikie, Terry Cannon, Ian Davis, and Ben Wisner 1994 Building Safer Communities. Risk Governance, Spatial Planning and Responses to Natural Hazards Urbano Fra Paleo 2009 Dangerous Earth: An introduction to geologic hazards Barbara W. Murck, Brian J. Skinner, Stephen C. Porter 1998 Disasters and Democracy Rutherford H. Platt 1999 Earth Shock: Hurricanes, volcanoes, earthquakes, tornadoes and other forces of nature W. Andrew Robinson 1993 Human System Response to Disaster: An Inventory of Sociological Findings Thomas E. Drabek 1986 Judgment Under Uncertainty: heuristics and biases Daniel Kahneman, Paul Slovic, and Amos Tversky 1982 Mapping Vulnerability: disasters, development, and people Greg Bankoff, Georg Frerks, and Dorothea Hilhorst 2004 Man and Society in Calamity: The Effects of War, Revolution, Famine, Pestilence upon Human Mind, Behavior, Social Organization and Cultural Life Pitirim Sorokin 1942 Mitigation of Hazardous Comets and Asteroids Michael J.S. Belton, Thomas H. Morgan, Nalin H. Samarasinha, Donald K. Yeomans 2005 Natural Disaster Hotspots: a global risk analysis Maxx Dilley 2005 Natural Hazard Mitigation: Recasting disaster policy and planning David Godschalk, Timothy Beatley, Philip Berke, David Brower, and Edward J. Kaiser 1999 Natural Hazards: Earth’s processes as hazards, disasters, and catastrophes Edward A. Keller, and Robert H. Blodgett 2006 Normal Accidents. Living with high-risk technologies Charles Perrow 1984 Paying the Price: The status and role of insurance against natural disasters in the United States Howard Kunreuther, and Richard J. Roth 1998 Planning for Earthquakes: Risks, politics, and policy Philip R. Berke, and Timothy Beatley 1992 Practical Project Risk Management: The ATOM Methodology David Hillson and Peter Simon 2012 Reduction and Predictability of Natural Disasters John B. Rundle, William Klein, Don L. Turcotte 1996 Regions of Risk: A geographical introduction to disasters Kenneth Hewitt 1997 Risk Analysis: a quantitative guide David Vose 2008 Risk: An introduction (ISBN 978-0-415-49089-4) Bernardus Ale 2009 Risk and Culture: An essay on the selection of technical and environmental dangers Mary Douglas, and Aaron Wildavsky 1982 Socially Responsible Engineering: Justice in Risk Management (ISBN 978-0-471-78707-5) Daniel A. Vallero, and P. Aarne Vesilind 2006 Swimming with Crocodiles: The Culture of Extreme Drinking Marjana Martinic and Fiona Measham (eds.) 2008 The Challenger Launch Decision: Risky Technology, Culture and Deviance at NASA Diane Vaughan 1997 The Environment as Hazard Ian Burton, Robert Kates, and Gilbert F. White 1978 The Social Amplification of Risk Nick Pidgeon, Roger E. Kasperson, and Paul Slovic 2003 What is a Disaster? New answers to old questions Ronald W. Perry, and Enrico Quarantelli 2005 Floods: From Risk to Opportunity (IAHS Red Book Series) Ali Chavoshian, and Kuniyoshi Takeuchi 2013 The Risk Factor: Why Every Organization Needs Big Bets, Bold Characters, and the Occasional Spectacular Failure Deborah Perry Piscione 2014 ## See also ## References 1. ^ a b c "Risk". Cambridge Dictionary. 2. ^ a b "Glossary" (PDF). Society for Risk Analysis. Retrieved 13 April 2020. 3. ^ a b c d 4. ^ "risk". Oxford English Dictionary (3rd ed.). Oxford University Press. September 2005. 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