Risk is an integral part of everyday human life. We both seek, and are unwillingly exposed to varying degrees of risk. Risk can be defined as being a situation with more than one outcome. Risk should be quantifiable, in that, that the risk taker should have an idea of the probabilities of the possible outcomes occurring. For Example, investing in a stock. Investing in a stock can give the investor multiple outcomes, it can give a negative outcome, like when the stock performs badly in the market and the stock decreases in value. Or it can give a positive outcome , like when the stock performs strongly in the market and the stock increases in value. The performance of a stock can be measured through past data gathered from the stock, or from similar stocks.
Uncertainty can also be defined as being a situation with more than one outcome. However, uncertainty is not quantifiable. Instead uncertainty is a situation where the participant is not aware of the probabilities of the outcomes. Frank Knight, an economist from the University of Chicago, summarized the differences of Risk and Uncertainty by stating:
“Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. 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 phenomena 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 un-measurable one that it is not in effect an uncertainty at...
... middle of paper ...
...like the one represented at the end of the paper) to find area under the curve the represents the values between $600 and $500. After looking through the table we will find the area of the specified region is .4222 which translates to a probability of occurance being 42.22%. The standard score is positive, like that above, when outcome is above the mean, but it will be negative when it is below the mean. For example, , if we want to know the probability that the profit from Investment A will fall between $400 and $500, we will get a standard score of -1.42. Even though the standard score is negative we can find the probability in the same way, using the table, which will give us 42.22% probability. Since a normal distribution is symmetric about the mean, the probability of two separate outcomes on either side of the mean will have the same chances of occurring.
Uncertainty in organizations is a key element to be dealt with in the areas of technology, rules and rituals (Hofstede, 1980). The notion of uncertainty is frequently connected to the perception of environment as the ‘environment is taken to include everything not under direct control of the organization as a source of uncertainty for which the organization tries to compensate’ (Hofstede, 1980: 155). The organization deals with uncertainty in the way in which uncertainties are observed inside the business. According to Torrington, uncertainty avoidance is the degree to which the future is always unknown (1994). Some cultures socialize their participants to accept this idea and take risks. Whereas members of other cultures have been socialized to be made worried or threatened by this and therefore, search for reparation through the ‘security of law, religion or technology’. (Torrington, 1994:
Barry begins his account with contrasting the strength of certainty and the weakness of uncertainty to better define the term uncertainty. This sophisticated antithesis initiates a contrast between the
What is risk? Risk is not a peril, rather perils are the causes of risk. Perils should not be confused with hazards, which are contributing factors to perils. Broder and Tucker suggest that risk is limited to the uncertainty of financial loss, the variations between actual and expected results, or the probability that a loss has occurred or will occur (2012, p. 3). Risk is further classified as “speculative”, such as the potential for both loss and gain that exists in gambling, and “pure risk”, equating to any loss/no-loss situation to which insurability may apply. Risk can be further divided into how it applies to three common categories: personal (people assets), property (material assets) and liability (legal issues).
As a result, the topic of ‘risk management’ can be related to a biblical passage in The Book of Ecclesiastes, Chapter 11:5-6. According to Solomon, “As thou knowest not what is the way of the spirit, nor how the bones do grow in the womb of her that is with child: even so thou knowest not the works of God who maketh all. In the morning sow thy seed, and in the evening withhold not thine hand: for thou knowest not whether shall prosper, either this or that, or whether they both shall be alike good” (2009, p. 975). Thus, as stated previously, risk consists of uncertainty and risk management is the process of mitigating such risk in order to prevent counterproductive consequences. The Lord is the all-knowing entity throughout the universe, and
is unreliability. The only thing they can be certain of is uncertainty. Yet, there is but a single difference
The theory of uncertainty is an important concept when examining the meaning of life because one can never be certain about anything. The uncertainty theory helps one consider every single possible answer to a question before coming to a conclusion. According to Stephen Hawking “Quantum physics tells us that nothing is ever located at a definite point because if it were, the uncertainty in momentum would have to be infinite. (73, Hawking and Mlodinow) Take into consideration the buckyball experiment, in which scientists shot buckyballs, which are made of carbon atoms at a barrier with two slits. Typically, most of the balls would shoot back and some would go through the slits. But, one must consider that according to the quantum model there is no definite position for the buckyballs during the time it is between the start point and the end point. This would mean that the buckyballs could take every possible pathway between the points. According to quantum physics each particle also has the probability of being found anywhere in the universe. “Given the state of a system at some time, the laws of nature determine the probabilities of various futures and pasts rather than determining the fu...
Through this paper I will conduct an analysis of the uncertainty reduction theory and will then apply it to my own experience here in Colorado university.
Market Risk is also known as Systematic Risk due to its broad impact on investments. The level of Market Risk depends on the probability that the entire market will decline and drag down the values of all companies. With Market Risk, investors stand to lose value irrespective of the companies, business sectors, or investment vehicles they are invested in. It can be difficult for investors to protect themselves against market risk, since investment strategies, like diversification, is mostly ineffective (Investopedia,
In your response, build upon extant portfolio theory and make sure to talk about different types of risks that investors might face and how they go about managing such risks. This means you need to consider topics such as efficient frontier and optimal portfolios; as well their relevance to investment theory. Furthermore, given the nature of the assignment, avoid bringing the brokerage industry into your discussion. In other words, assume you can invest directly in the stock market and do not need any financial intermediaries like brokerage houses.
Analyzing in terms of investment, if a private investor puts money into a company he has an expectation of both risk and return on the investment. Given a particular level of risk, the investment needs to be expected to have a particular level of return. For example, investment in a start-up needs to have the potential for a very high return, given the higher risk of failure, while investment in a large established business can be coupled with a lower expected return, given the lower risk of failure.
Sledge, Miles, and Coppage (2008) explain uncertainty avoidance as “the degree of risk aversion” (1670). In a country with high uncertainty avoidance there may be more policies and procedures in place. In a culture with low uncertainty avoidance companies could empower employees to develop new ideas.
Over the past decade, risk and uncertainty have increasingly become major issues which impact business activities. Many organizations are raising awareness to minimize the adverse consequences by implementing the process of Risk Management Framework which plays a significant role in mitigating almost all categories of risks. According to Ward (2005), the objective of risk management is to enhance a company’s performance. In particular, the importance of the framework is to assist top management in developing a sensible risk management strategy and program.
As has been discussed before, risk identification plays an important part in the risk such as unique, subjective, complex and uncertainly. There are no two identical leaves in the world; similar, there are no two exactly the same risk either. Hence the best risk manger could not identify risk completely. Besides, risk identification assessment is done by risk analysts. As the different level of risk management knowledge, practical experience and other aspects between individuals, the result of risk identification may be difference. Furthermore, the process of identifying risk is still risky. Once risks have been identified, corporations have to take actions on limiting risky actions to reduce the frequency and severity of risky. They have to think about any lost profit from limiting distribution of risky action. So reducing risk identification risk is one of assessments in the risk
Risk is the potential loss resulting from the balance of threat, vulnerabilities, countermeasures, and value. ...
The major strength of science is that it has uncertainty and skepticism. Science never claims to be hundred percent accurate. There is always some degree of ambiguity and probability in science. The Heisenberg’s uncertainty in quantum mechanics is a good example of this. According to the Heisenberg’s uncertainty, we can never be sure of the position of the quantum particles. There is always a degree of fuzziness in nature and a fundamental limit to what we can understand about these particles and their behavior. We can only calculate the probability of the nature of the particle and ho...