Risk
Risk is the potential for loss or gain associated with a particular action or decision. It is the uncertainty of an outcome, and the possibility of loss or gain associated with a decision or action. Risk can be measured in terms of the probability of an event occurring, and the magnitude of the consequences if it does. Risk management is the process of identifying, assessing, and controlling risks associated with a particular activity or decision.
History of Risk
Risk has been studied and discussed since ancient times. The earliest known reference to risk is in the Epic of Gilgamesh, which dates back to around 2100 BC. In the Epic, Gilgamesh and his companion Enkidu take a dangerous journey to the Cedar Forest to battle the monster Humbaba. The risk of death or injury is present throughout the story, and Gilgamesh and Enkidu must weigh the potential rewards of their journey against the potential risks.
In the modern era, risk has been studied extensively in the fields of economics, finance, and insurance. In the 19th century, the concept of risk was formalized by the French mathematician Louis Bachelier, who developed a mathematical theory of probability and risk. In the 20th century, the concept of risk was further developed by the American economist Frank Knight, who argued that risk was an inherent part of any decision-making process.
Risk vs. Uncertainty
Risk and uncertainty are often used interchangeably, but they are not the same. Risk is the potential for loss or gain associated with a particular action or decision, while uncertainty is the lack of knowledge or information about a particular outcome. Risk can be measured and managed, while uncertainty cannot.
Table of Comparisons
| Risk | Uncertainty |
|---|---|
| Potential for loss or gain | Lack of knowledge or information |
| Can be measured and managed | Cannot be measured or managed |
Summary
Risk is the potential for loss or gain associated with a particular action or decision. It is the uncertainty of an outcome, and the possibility of loss or gain associated with a decision or action. Risk can be measured in terms of the probability of an event occurring, and the magnitude of the consequences if it does. Risk is different from uncertainty, as risk can be measured and managed, while uncertainty cannot. For more information about risk, visit websites such as Investopedia, The Balance, and the Risk Management Association.
See Also
- Probability
- Risk Management
- Insurance
- Investment
- Portfolio Management
- Hedging
- Liability
- Volatility
- Risk Aversion
- Risk Tolerance
