Risk is an uncertain condition that can result in quantifiable damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.
In simple terms, risk is the possibility of something bad happening. 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. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is “effect of uncertainty on objectives”.
The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc). This article provides links to more detailed articles on these areas. The international standard for risk management, ISO 31000, provides principles and generic guidelines on managing risks faced by organizations.
Definitions of risk
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.
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).
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”).
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) and was the main definition in the OED 1st (1914) and 2nd (1989) editions. Modern equivalents refer to “unwanted events”  or “something bad that might happen”.
- “Chance of harm”. This definition comes from Johnson’s “Dictionary of the English Language” (1755), and has been widely paraphrased, including “possibility of loss”  or “probability of unwanted events”.
- “Uncertainty about loss”. This definition comes from Willett’s “Economic Theory of Risk and Insurance” (1901). 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). It allows “risk” to be used equally for positive and negative outcomes. In insurance, risk involves situations with unknown outcomes but known probability distributions.
- “Volatility of return”. Equivalence between risk and variance of return was first identified in Markovitz’s “Portfolio Selection” (1952). In finance, volatility of return is often equated to risk.
- “Statistically expected loss”. The expected value of loss was used to define risk by Wald (1939) in what is now known as decision theory. The probability of an event multiplied by its magnitude was proposed as a definition of risk for the planning of the Delta Works in 1953, a flood protection program in the Netherlands. It was adopted by the US Nuclear Regulatory Commission (1975), and remains widely used.
- “Likelihood and severity of events”. The “triplet” definition of risk as “scenarios, probabilities and consequences” was proposed by Kaplan & Garrick (1981). Many definitions refer to the likelihood/probability of events/effects/losses of different severity/consequence, e.g. ISO Guide 73 Note 4.
- “Consequences and associated uncertainty”. This was proposed by Kaplan & Garrick (1981). This definition is preferred in Bayesian analysis, which sees risk as the combination of events and uncertainties about them.
- “Uncertain events affecting objectives”. This definition was adopted by the Association for Project Management (1997). With slight rewording it became the definition in ISO Guide 73.
- “Uncertainty of outcome”. This definition was adopted by the UK Cabinet Office (2002) to encourage innovation to improve public services. It allowed “risk” to describe either “positive opportunity or negative threat of actions and events”.
- “Asset, threat and vulnerability”. This definition comes from the Threat Analysis Group (2010) in the context of computer security.
- “Human interaction with uncertainty”. This definition comes from Cline (2015) 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.
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.”
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.
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.
In economics, as in finance, risk is often defined as quantifiable uncertainty about gains and losses.
Finance is concerned with money management and acquiring funds.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. 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.
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 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.
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”.
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.
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.
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 
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."
Security risk management involves protection of assets from harm caused by deliberate acts.
Assessment and management of risk
Risk is ubiquitous in all areas of life and we all manage these risks, consciously or intuitively, whether we are managing a large organization or simply crossing the road. Intuitive risk management is addressed under the psychology of risk below.
Risk management refers to a systematic approach to managing risks, and sometimes to the profession that does this. A general definition is that risk management consists of “coordinated activities to direct and control an organization with regard to risk".
- Communicating and consulting
- Establishing the scope, context and criteria
- Risk assessment - recognising and characterising risks, and evaluating their significance to support decision-making. This includes risk identification, risk analysis and risk evaluation.
- Risk treatment - selecting and implementing options for addressing risk.
- Monitoring and reviewing
- Recording and reporting
In general, the aim of risk management is to assist organizations in “setting strategy, achieving objectives and making informed decisions”. The outcomes should be “scientifically sound, cost-effective, integrated actions that [treat] risks while taking into account social, cultural, ethical, political, and legal considerations”.
In contexts where risks are always harmful, risk management aims to “reduce or prevent risks”. In the safety field it aims “to protect employees, the general public, the environment, and company assets, while avoiding business interruptions”.
For organizations whose definition of risk includes “upside” as well as “downside” risks, risk management is “as much about identifying opportunities as avoiding or mitigating losses”. It then involves “getting the right balance between innovation and change on the one hand, and avoidance of shocks and crises on the other”.
Risk assessment is a systematic approach to recognising and characterising risks, and evaluating their significance, in order to support decisions about how to manage them. ISO 31000 defines it in terms of its components as “the overall process of risk identification, risk analysis and risk evaluation”.
- Qualitative approaches are based on qualitative descriptions of risks and rely on judgement to evaluate their significance.
- Semi-quantitative approaches use numerical rating scales to group the consequences and probabilities of events into bands such as “high”, “medium” and “low”. They may use a risk matrix to evaluate the significance of particular combinations of probability and consequence.
- Quantitative approaches, including Quantitative risk assessment (QRA) and probabilistic risk assessment (PRA), estimate probabilities and consequences in appropriate units, combine them into risk metrics, and evaluate them using numerical risk criteria.
The specific steps vary widely in different practice areas.
ISO 31000 describes it as the first step in a risk assessment process, preceding risk analysis and risk evaluation. In safety contexts, where risk sources are known as hazards, this step is known as “hazard identification”.
- Checklists or taxonomies based on past data or theoretical models.
- Evidence-based methods, such as literature reviews and analysis of historical data.
- Team-based methods that systematically consider possible deviations from normal operations, e.g. HAZOP, FMEA and SWIFT.
- Empirical methods, such as testing and modelling to identify what might happen under particular circumstances.
- Techniques encouraging imaginative thinking about possibilities of the future, such as scenario analysis.
- Expert-elicitation methods such as brainstorming, interviews and audits.
Sometimes, risk identification methods are limited to finding and documenting risks that are to be analysed and evaluated elsewhere. However, many risk identification methods also consider whether control measures are sufficient and recommend improvements. Hence they function as stand-alone qualitative risk assessment techniques.
Risk analysis is about developing an understanding of the risk. ISO defines it as “the process to comprehend the nature of risk and to determine the level of risk”. In the ISO 31000 risk assessment process, risk analysis follows risk identification and precedes risk evaluation. However, these distinctions are not always followed.
- Determining the sources, causes and drivers of risk
- Investigating the effectiveness of existing controls
- Analysing possible consequences and their likelihood
- Understanding interactions and dependencies between risks
- Determining measures of risk
- Verifying and validating results
- Uncertainty and sensitivity analysis
Risk analysis often uses data on the probabilities and consequences of previous events. Where there have been few such events, or in the context of systems that are not yet operational and therefore have no previous experience, various analytical methods may be used to estimate the probabilities and consequences:
- Proxy or analogue data from other contexts, presumed to be similar in some aspects of risk.
- Theoretical models, such as Monte Carlo simulation and Quantitative risk assessment software.
- Logical models, such as Bayesian networks, fault tree analysis and event tree analysis
- Expert judgement, such as absolute probability judgement or the Delphi method.
Risk evaluation and risk criteria
In most activities, risks can be reduced by adding further controls or other treatment options, but typically this increases cost or inconvenience. It is rarely possible to eliminate risks altogether without discontinuing the activity. Sometimes it is desirable to increase risks to secure valued benefits. Risk criteria are intended to guide decisions on these issues.
Types of criteria include:
- Criteria that define the level of risk that can be accepted in pursuit of objectives, sometimes known as risk appetite, and evaluated by risk/reward analysis.
- Criteria that determine whether further controls are needed, such as benefit-cost ratio.
- Criteria that decide between different risk management options, such as multiple-criteria decision analysis.
The simplest framework for risk criteria is a single level which divides acceptable risks from those that need treatment. This gives attractively simple results but does not reflect the uncertainties involved both in estimating risks and in defining the criteria.
- Unacceptable risks – only permitted in exceptional circumstances.
- Tolerable risks – to be kept as low as reasonably practicable (ALARP), taking into account the costs and benefits of further risk reduction.
- Broadly acceptable risks – not normally requiring further reduction.
Descriptions of risk
- for i = 1,2,....,N
- is a scenario describing a possible event
- is the probability of the scenario
- is the consequence of the scenario
- is the number of scenarios chosen to describe the risk
These are the answers to the three fundamental questions asked by a risk analysis:
- What can happen?
- How likely is it to happen?
- If it does happen, what would the consequences be?
The scenarios can be plotted in a consequence/likelihood matrix (or risk matrix). These typically divide consequences and likelihoods into 3 to 5 bands. Different scales can be used for different types of consequences (e.g. finance, safety, environment etc.), and can include positive as well as negative consequences.
- is an event that might occur
- is the consequences of the event
- is an assessment of uncertainties
- is a knowledge-based probability of the event
- is the background knowledge that U and P are based on
If all the consequences are expressed in the same units (or can be converted into a consistent loss function), the risk can be expressed as a probability density function describing the “uncertainty about outcome”:
One way of highlighting the tail of this distribution is by showing the probability of exceeding given losses, known as a complementary cumulative distribution function, plotted on logarithmic scales. Examples include frequency-number (FN) diagrams, showing the annual frequency of exceeding given numbers of fatalities.
A simple way of summarising the size of the distribution’s tail is the loss with a certain probability of exceedance, such as the Value at Risk.
Risk is often measured as the expected value of the loss. This combines the probabilities and consequences 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:
- (terms defined above)
A disadvantage of defining risk as the product of impact and probability is that it presumes, unrealistically, that decision-makers are risk-neutral. 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.
In finance, volatility is the degree of variation of a trading price over time, usually measured by the standard deviation of logarithmic returns. Modern portfolio theory measures risk using the variance (or standard deviation) of asset prices. The risk is then:
Risks of discrete events such as accidents are often measured as outcome frequencies, or expected rates of specific loss events per unit time. When small, frequencies are numerically similar to probabilities, but have dimensions of [1/time] and can sum to more than 1. Typical outcomes expressed this way include:
- Individual risk - the frequency of a given level of harm to an individual. It often refers to the expected annual probability of death. Where risk criteria refer to the individual risk, the risk assessment must use this metric.
- Group (or societal risk) – the relationship between the frequency and the number of people suffering harm.
- Frequencies of property damage or total loss.
- Frequencies of environmental damage such as oil spills.
In health, the relative risk is the ratio of the probability of an outcome in an exposed group to the probability of an outcome in an unexposed group.
Psychology of risk
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.
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). Some studies show a link between anxious behaviour and risk (the chance that an outcome will have an unfavorable result). 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.
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. 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.
Consequences of anxiety
Experimental studies show that brief surges in anxiety are correlated with surges in general risk perception. Anxiety exists when the presence of threat is perceived (Maner and Schmidt, 2006). As risk perception increases, it stays related to the particular source impacting the mood change as opposed to spreading to unrelated risk factors. This increased awareness of a threat is significantly more emphasised in people who are conditioned to anxiety. For example, anxious individuals who are predisposed to generating reasons for negative results tend to exhibit pessimism. 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. 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.
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. 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.
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, threatening to kill a large number of people within a short period of time. 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.
Different hypotheses have been proposed to explain why people fear dread risks. First, the psychometric paradigm 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. Third, according to the preparedness hypothesis, people are prone to fear events that have been particularly threatening to survival in human evolutionary history. Given that in most of human evolutionary history people lived in relatively small groups, rarely exceeding 100 people, a dread risk, which kills many people at once, could potentially wipe out one's whole group. Indeed, research found 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. 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.
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. 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.
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?"
Framing 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 while greater left prefrontal activity relates to local or focal processing.
From the Theory of Leaky Modules 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. 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.
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.:
- 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.
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. 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.
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.
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 .
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. 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 and autonomy
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. "People's autonomy used to be compromised by institution walls, now it's too often our risk management practices", according to John O'Brien. 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.
This is a list of books about risk issues.
|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|
- Ambiguity aversion
- Audit risk
- Benefit shortfall
- Civil defence
- Early case assessment
- External risk
- Enterprise risk
- Event chain methodology
- Financial risk
- Fuel price risk management
- Global catastrophic risk
- Hazard (risk)
- Identity resolution
- Information assurance
- Inherent risk
- Inherent risk (accounting)
- International Risk Governance Council
- ISO/PAS 28000
- IT risk
- Legal risk
- Life-critical system
- Liquidity risk
- Loss aversion
- Moral hazard
- Operational risk
- Preventive maintenance
- Probabilistic risk assessment
- Process risk
- Reputational risk
- Reliability engineering
- Risk analysis
- Risk assessment
- Risk compensation
- Risk management
- Risk-neutral measure
- Risk perception
- Risk register
- Sampling risk
- Systemic risk
- Systematic risk
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- Hansson, Sven Ove, "Risk", The Stanford Encyclopedia of Philosophy (Fall 2018 Edition), Edward N. Zalta (ed.)
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- A Guide to the Project Management Body of Knowledge (4th Edition) ANSI/PMI 99-001-2008
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- Gurjar, Bhola Ram; Mohan, Manju (2002). "Environmental Risk Analysis: Problems and Perspectives in Different Countries". Risk: Health, Safety & Environment. 13: 3. Retrieved 23 March 2013.
- Kurt, Daniel. "What is Finance?". Investopedia.
- "Risk". Farlex Financial Dictionary.
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- Ranking of Risks for Existing and New Building Works, Sustainability 2019, 11(10), 2863, https://doi.org/10.3390/su11102863
- Julian Talbot and Miles Jakeman Security Risk Management Body of Knowledge, John Wiley & Sons, 2009.
- Risk Assessment and Risk Management in Regulatory Decision-Making. Presidential/Congressional Commission on Risk Assessment and Risk Management. 1997.
- "Risk management". Process Safety Glossary. Center for Chemical Process Safety. Retrieved 29 October 2020.
- AS/NZS 4360:1999 Risk Management. Standards Australia & Standards New Zealand. 1999.
- Risk: Improving government's capability to handle risk and uncertainty. Cabinet Office. 2002.
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- Harmonised Risk Acceptance Criteria for Transport of Dangerous Goods (PDF). European Commission. 2014.
- The Tolerability of Risk from Nuclear Power Stations (PDF) (2nd ed.). Health and Safety Executive. 1992.
- A Guide to Quantitative Risk Assessment for Offshore Installations. Centre of Marine and Petroleum Technology. 1999. pp. 136–145.
- Jones, David (1992). Nomenclature for Hazard and Risk Assessment (2nd ed.). Institution of Chemical Engineers.
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- Jon Gertner. What Are We Afraid Of, Money 32.5 (2003): 80.
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- Jon K. Maner, Norman B. Schmidt, The Role of Risk Avoidance in Anxiety, Behavior Therapy, Volume 37, Issue 2, June 2006, pp. 181–189, ISSN 0005-7894, 10.1016/j.beth.2005.11.003.
- Constans, Joseph I. (2001). "Worry propensity and the perception of risk". Behaviour Research and Therapy. 39 (6): 721–729. doi:10.1016/S0005-7967(00)00037-1. PMID 11400715.
- Jon K. Maner, J. Anthony Richey, Kiara Cromer, Mike Mallott, Carl W. Lejuez, Thomas E. Joiner, Norman B. Schmidt, Dispositional anxiety and risk-avoidant decision-making, Personality and Individual Differences, Volume 42, Issue 4, March 2007, pp. 665–675, ISSN 0191-8869, 10.1016/j.paid.2006.08.016.
- Joshua A. Hemmerich, Arthur S. Elstein, Margaret L. Schwarze, Elizabeth Ghini Moliski, William Dale, Risk as feelings in the effect of patient outcomes on physicians' future treatment decisions: A randomized trial and manipulation validation, Social Science & Medicine, Volume 75, Issue 2, July 2012, pp. 367–376, ISSN 0277-9536, 10.1016/j.socscimed.2012.03.020.
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- Gigerenzer G (2004) Dread risk, 11 September, and fatal traffic accidents. Psych Sci 15:286−287.
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- Hill, KR; Walker, RS; Bozicevic, M; Eder, J; Headland, T; et al. (2011). "Co-residence patterns in hunter-gatherer societies show unique human social structure". Science. 331 (6022): 1286–1289. Bibcode:2011Sci...331.1286H. doi:10.1126/science.1199071. PMID 21393537. S2CID 93958.
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- Bodemer, N.; Ruggeri, A.; Galesic, M. (2013). "When dread risks are more dreadful than continuous risks: Comparing cumulative population losses over time". PLOS ONE. 8 (6): e66544. Bibcode:2013PLoSO...866544B. doi:10.1371/journal.pone.0066544. PMC 3694073. PMID 23840503.
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- Virine, L., & Trumper, M. ProjectThink. Gower. 2013
- Virine, L., & Trumper, M. Project Risk Analysis Made Ridiculously Simple. World Scientific Publishing. 2017
- Amos Tversky / Daniel Kahneman, 1981. "The Framing of Decisions and the Psychology of Choice."[verification needed]
- Schatz, J.; Craft, S.; Koby, M.; DeBaun, M. R. (2004). "Asymmetries in visual-spatial processing following childhood stroke". Neuropsychology. 18 (2): 340–352. doi:10.1037/0894-4184.108.40.2060. PMID 15099156.
- Volberg, G.; Hubner, R. (2004). "On the role of response conflicts and stimulus position for hemispheric differences in global/local processing: An ERP study". Neuropsychologia (Submitted manuscript). 42 (13): 1805–1813. doi:10.1016/j.neuropsychologia.2004.04.017. PMID 15351629. S2CID 9810481.
- Drake, R. A. (2004). Selective potentiation of proximal processes: Neurobiological mechanisms for spread of activation. Medical Science Monitor, 10, 231–234.
- McElroy, T.; Seta, J. J. (2004). "On the other hand, am I rational? Hemisphere activation and the framing effect" (PDF). Brain and Cognition. 55 (3): 572–580. doi:10.1016/j.bandc.2004.04.002. PMID 15223204. S2CID 9949183.
- Krueger, Norris, and Peter R. Dickson. "How believing in ourselves increases risk taking: perceived self-efficacy and opportunity recognition." Decision Sciences 25, no. 3 (1994): 385–400.
- Frank Hyneman Knight "Risk, uncertainty and profit" pg. 19, Hart, Schaffner, and Marx Prize Essays, no. 31. Boston and New York: Houghton Mifflin. 1921.
- Douglas Hubbard "How to Measure Anything: Finding the Value of Intangibles in Business" pg. 46, John Wiley & Sons, 2007.
- Mandelbrot, Benoit and Richard L. Hudson (2008). The (mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward. London: Profile Books. ISBN 9781846682629.
- Federal Reserve Bank of Chicago, Health and the Savings of Insured versus Uninsured, Working-Age Households in the U.S., November 2009
- Masson, Maxime; Lamoureux, Julie; de Guise, Elaine (October 2019). "Self-reported risk-taking and sensation-seeking behavior predict helmet wear amongst Canadian ski and snowboard instructors". Canadian Journal of Behavioural Science. 52 (2): 121–130. doi:10.1037/cbs0000153.
- A Positive Approach To Risk Requires Person Centred Thinking, Neill et al., Tizard Learning Disability Review http://pierprofessional.metapress.com/content/vr700311x66j0125/[permanent dead link]
- John O'Brien cited in Sanderson, H. Lewis, J. A Practical Guide to Delivering Personalisation; Person Centred Practice in Health and Social Care p211
- Fischer, Michael Daniel; Ferlie, Ewan (1 January 2013). "Resisting hybridisation between modes of clinical risk management: Contradiction, contest, and the production of intractable conflict" (PDF). Accounting, Organizations and Society. 38 (1): 30–49. doi:10.1016/j.aos.2012.11.002. S2CID 44146410.
- James Franklin, 2001: The Science of Conjecture: Evidence and Probability Before Pascal, Baltimore: Johns Hopkins University Press.
- John Handmer and Paul James (2005). "Trust Us and Be Scared: The Changing Nature of Risk". Global Society. 21 (1): 119–30.CS1 maint: uses authors parameter (link)
- Niklas Luhmann, 1996: Modern Society Shocked by its Risks (= University of Hong Kong, Department of Sociology Occasional Papers 17), Hong Kong, available via HKU Scholars HUB
- Historian David A. Moss' book When All Else Fails explains the US government's historical role as risk manager of last resort.
- Bernstein P. L. Against the Gods ISBN 0-471-29563-9. Risk explained and its appreciation by man traced from earliest times through all the major figures of their ages in mathematical circles.
- Rescher, Nicholas (1983). A Philosophical Introduction to the Theory of Risk Evaluation and Measurement. University Press of America.
- Porteous, Bruce T.; Pradip Tapadar (December 2005). Economic Capital and Financial Risk Management for Financial Services Firms and Conglomerates. Palgrave Macmillan. ISBN 978-1-4039-3608-0.
- Tom Kendrick (2003). Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project. AMACOM/American Management Association. ISBN 978-0-8144-0761-5.
- Hillson D. (2007). Practical Project Risk Management: The Atom Methodology. Management Concepts. ISBN 978-1-56726-202-5.
- Kim Heldman (2005). Project Manager's Spotlight on Risk Management. Jossey-Bass. ISBN 978-0-7821-4411-6.
- Dirk Proske (2008). Catalogue of risks – Natural, Technical, Social and Health Risks. Eos Transactions. 90. Springer. p. 18. Bibcode:2009EOSTr..90...18E. doi:10.1029/2009EO020009. ISBN 978-3-540-79554-4.
- Gardner D. Risk: The Science and Politics of Fear, Random House Inc. (2008) ISBN 0-7710-3299-4.
- Novak S.Y. Extreme value methods with applications to finance. London: CRC. (2011) ISBN 978-1-43983-574-6.
- Hopkin P. Fundamentals of Risk Management. 2nd Edition. Kogan-Page (2012) ISBN 978-0-7494-6539-1
Articles and papers
- Cevolini, A (2015). ""Tempo e decisione. Perché Aristotele non-ha un concetto di rischio?" PDF". Divus Thomas. 118 (1): 221–249.
- Clark, L.; Manes, F.; Antoun, N.; Sahakian, B. J.; Robbins, T. W. (2003). "The contributions of lesion laterality and lesion volume to decision-making impairment following frontal lobe damage". Neuropsychologia. 41 (11): 1474–1483. doi:10.1016/s0028-3932(03)00081-2. PMID 12849765. S2CID 46447795.
- Cokely, E. T.; Galesic, M.; Schulz, E.; Ghazal, S.; Garcia-Retamero, R. (2012). "Measuring risk literacy: The Berlin Numeracy Test" (PDF). Judgment and Decision Making. 7: 25–47.
- Drake, R. A. (1985). "Decision making and risk taking: Neurological manipulation with a proposed consistency mediation". Contemporary Social Psychology. 11: 149–152.
- Drake, R. A. (1985). "Lateral asymmetry of risky recommendations". Personality and Social Psychology Bulletin. 11 (4): 409–417. doi:10.1177/0146167285114007. S2CID 143899523.
- Gregory, Kent J.; Bibbo, Giovanni; Pattison, John E. (2005). "A Standard Approach to Measurement Uncertainties for Scientists and Engineers in Medicine". Australasian Physical and Engineering Sciences in Medicine. 28 (2): 131–139. doi:10.1007/bf03178705. PMID 16060321. S2CID 13018991.
- Hansson, Sven Ove. (2007). "Risk", The Stanford Encyclopedia of Philosophy (Summer 2007 Edition), Edward N. Zalta (ed.), forthcoming .
- Holton, Glyn A. (2004). "Defining Risk", Financial Analysts Journal, 60 (6), 19–25. A paper exploring the foundations of risk. (PDF file).
- Knight, F. H. (1921) Risk, Uncertainty and Profit, Chicago: Houghton Mifflin Company. (Cited at: , § I.I.26.).
- Kruger, Daniel J., Wang, X.T., & Wilke, Andreas (2007) "Towards the development of an evolutionarily valid domain-specific risk-taking scale" Evolutionary Psychology (PDF file).
- Metzner-Szigeth, Andreas (2009). "Contradictory approaches? On realism and constructivism in the social sciences research on risk, technology and the environment" (PDF). Futures. 41 (3): 156–170. doi:10.1016/j.futures.2008.09.017.
- Miller, L (1985). "Cognitive risk taking after frontal or temporal lobectomy I. The synthesis of fragmented visual information". Neuropsychologia. 23 (3): 359–369. doi:10.1016/0028-3932(85)90022-3. PMID 4022303. S2CID 45154180.
- Miller, L.; Milner, B. (1985). "Cognitive risk taking after frontal or temporal lobectomy II. The synthesis of phonemic and semantic information". Neuropsychologia. 23 (3): 371–379. doi:10.1016/0028-3932(85)90023-5. PMID 4022304. S2CID 31082509.
- Neill, M. Allen, J. Woodhead, N. Reid, S. Irwin, L. Sanderson, H. 2008 "A Positive Approach to Risk Requires Person Centred Thinking" London, CSIP Personalisation Network, Department of Health. Available from: https://web.archive.org/web/20090218231745/http://networks.csip.org.uk/Personalisation/Topics/Browse/Risk/ [Accessed 21 July 2008].
- Wildavsky, Aaron; Wildavsky, Adam (2008). "Risk and Safety". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
- Risk – The entry of the Stanford Encyclopedia of Philosophy