Talk:Risk/Archive 1

Wikipedia coverage

judging by the rather large number of necessary linked articles that do not exist in wiki, it appears that this is a drastically retarded subject here. Considering the rather voluminous number of specific writings on such subjects as nuclear strategy and Mutual Assured Destruction and other such extreme body-risking endeavors that have sucked up huge human energy and planetary resources, it seems odd, ominous even, that risk itself should be so poorly discussed that decision-making under uncertainty or so many specific terms in that field should not be covered here already.

putting such a foundation under the more specific military, finance, and insurance topics, is a lot of work, and I don't think it should proceed if there are any significant objections to the view of risk outlined in this article.

I request that we push very hard on this one, and make it satisfactory to as many of our pedants as possible, and likewise for cognitive bias, before we proceed on to lay out the foundations of cognitive psychology and etc.

I guess this is a request for a "risk strategy" - and some vague consensus on how and when to refer to "risk", "threat", "assessment" or "measurement" - as these highly politicized topics are often meta to our editorial decisions.

On a more specific note, the 28,000 article mark and 100,000 article goal suggests to me that wiki is 28% complete. That is, anyone writing any article should expect to find 28% of the subtopics they link to already there... if we allow for some slack due to mismatches of expected names, we might then expect some proportion, say 2/3 to 3/4, or right now 18% to 21%, of our links already there.

The practice of removing "links to non-articles" must therefore totally stop, so that we can start to assess the missing articles underlying the ones that already exist.

Is this "bad link risk?" I think so. 3 April 2002

I'm not sure were those numbers are from, but I don't think they're close to reality.

100,000 articles is the goal set on the main page.

At the level of specificity I think an online encyclopedia like this requires, I'd estimate that it will be near complete with about 500,000 articles or so. I do agree that one shouldnever remove links to potential articles. One should, of course, remove links to titles that will never be articles. --LDC

and how is that to be judged? an editorial clique can only go so much to predict phrases common in unpublished discourse or deliberately avoiding the net. Go look at talk:terristwhere someone showed up to claim they were in fact a terrist. Obviously these people are not going to publish web based manifestoes and get on Bush watch lists - they are going to talk amongst themselves and be reported not by journalists nor academics but by those who are positions to know they exist. The Economist gets its information this way.

numbers presenting risk to body?

"Opponents of these views tend not to argue with them, but rather tend to ignore them, or claim that humans and their social means of resource and professional time allocation are necessarily at odds. As Alfred North Whitehead put it, "the most one can hope for from civilization is that it not crush 'every' form of human expression" and "algebra is the intellectual instrument which has been created for rendering clear the quantitative aspects of the world." By which analysis, algebra defines risk and perhaps civilization itself. Is algebra therefore hopelessly in conflict with body? Is quantitative risk assessment a means of imposing a price on a human life?

"Some think so. The IPCC in their report on theKyoto Protocol made the assumption that a human life in the developed world would be worth, on the basis of the price nations would pay to save it, fifteen times more than a human life in the developing world. This led to the Kyoto calculations - and what is more the calculations would have been impossible without them.

"After the disastrous September 11th, 2001 attack on Manhattan's World Trade Center, the United States Government was forced into a similar position as it attempted to settle many complex potential liability claims - stepping temporarily into the position of an insurance company. This raised questions regarding governments setting prices on life as matters of policy, and highlighted the contrasting, competing, and conflicting ways that each profession assesses risk, and places implicit prices on human lives subject ot their decisions."

Pasted this apparently controversial text which was deleted from the main article by an IP address not logged in here into talk. The above looks applicable to engineering risk calculations and risk management as I understand them from USG training. I think some Wikipedians may be getting carried away in edit wars here. user:mirwin

the forces of civilization are strong - at least in virtual reality. But there are scope concerns. Of course the above is absolutely relevant to risk, and of course its removal is clearly ideologically motivated. But its removal also suggests that we need some other articles on insurance risk, engineering risk, prices set on human life tacitly by government activity, etc.. This is related also to the way that the commodity markets as such set prices on life in certain ways. 24

I suggest that a number of other articles should be written about this, using this one as a reference. I'd be pleased to look over any first draft you care to write based on the above and your own background. As long as you keep making the point about professions and governments and civilizations, and keep reminding these characters that they are making risk decisions every time they buy anything, I think we can stay close to neutrality and tend towards a more natural view of risk itself. 24

Financial risk is different from Volatility

Momentum investors may dislike volatility because a sharp regression to the mean is more likely than a sharp upward move, but volatility is neutral with regard to risk. 66.53.120.36 (talk) 21:29, 27 August 2010 (UTC)jimmyreno

Some words in the definition not needed

"Risk is the potential future harm that may arise from some present action."

Why "from some present action"? Do, say, all landslides require "present action"? Some, of course, are triggered by e.g. engineering works ("present action"), but all?

So: "Risk is the potential future harm that may arise".

But why "that may arise"? Needed, when we have "future" and "potential"?

So: "Risk is potential future harm".

ATENTION: It's incorrect: the risk can be "potential" or "real". "potential" is the same that "future", "real is the same that present". I declare: "risk is possibility of harm" (present or future)

ATTENTION: this is incorrect. risk is a neutral concept that comes from statistics that refer to probability and mathematical likelihood of an event happening. but as time has passed people have put ominous overtones on it giving it a negative view.

yes, risk does require present action. A landslide is a risk to you only if you live under it. So, the risk of moving to a new home includes the risk of a landslide. Other people's landslides are not risky to you. "If a tree falls in a forest," you bear no risk if you bear no risk.

Risk does "not," require present or any other other kind of action. Risk may just be "exposure to something in which one is uncertain?" GT

Risk is not exposure, and risk is *not* the same as uncertainty either (see Knight)... XM

Of course it is also exposure, without exposure it is just hazard, risk is always the outcome of human action —Preceding unsignedcomment added by Wouldyou (talk •contribs) 02:10, 21 November 2010 (UTC)

Why "future"?

You could buy a Gold Mine and find out it ran out years ago. Suppose you were trying to sell a house built on a sink hole, or a toxic waste dump etc? GT

this is getting a little esoteric, but if you buy it, and find out that it ran out, but you have already sold it when you find out, you have no risk. So, you can see from this that when you purchase something, your risks lie in the future.

Only your risk of finding out is in the future. GT

no, your risk is financial. You finding out doesn't even affect you, as the person who sold it to you may have known already and it didn't affect them. You can do what they did and sell it to somebody else who doesn't know. But, this is twisting the meaning of "finding out". The risk in this situation is the risk that the market value of your asset declines, and that occurs with the public finding out. brassrat

The risk in this situation is the risk that the market value of your asset declines

You do not know if "and it didn't affect them." is true its pure speculation on your part that the pricing was not effected by what they knew or did not know.

It is true when you say "The risk in this situation is the risk that the market value of your asset declines," but it is pure speculation when you guess " and that occurs with the public finding out." You do not know that the public finding out had any true impact on price. Pure guess on the part of yourself and the press that may have fed you that speculation. The true risk is that of drawdown. "Why," it happened can never be known. GT

Why "harm"?

the article starts: "Risk is the potential harm..." While this reflects normal English usage, in terms of Finance it is an unworkable definition, just plain wrong. So I propose that the Risk page be disambiguated with a separate page for Financial Risk. Financial Risk is defined as variance in returns. To elucidate further, the price of an investment reflects the expected value, and this includes weighted probabilities of potential losses, i.e. the price of an asset that has a large potential for loss will have a low price, so it will not be a "risky" investment by the naive definition. The "risk" of such an investment is the risk that you might strike it rich. Statistical variance is exactly the measurement that captures the element of risk that intutively seems like a loss, but is in fact equally weighted up and down. The reason that a high variance investment that is equally weighted up and down (for instance, flip a coin for a million dollars) seems incredibly risky is not because of the potential harm, it is because of the declining marginal utility of wealth (a fancy way to say, a dollar gained is not worth as much as a dollar lost, which truth can be seen if you imagine yourself a homeless person with 2 dollars in your pocket). brassrat

"i.e. the price of an asset that has a large potential for loss MAY have a low price" GT

you made a small clarification without addressing the main thrust of what I wrote, so I'm not sure if you agree with me, or disagree. Your clarification does not change my argument, as you can see in this clarification of your clarification: regardless of whether the asset is priced fairly, risk is STILL variance, not "potential harm." For example, you point out that an asset may not reflect potential for loss. In a like manner, an asset may not reflect potential for gain. Both of these conditions increase the riskiness of the investment by increasing the variance. brassrat

So here you are saying "riskiness is related to (actual/expected), variance," is that correct? The gain or loss part of it is subjective. Variance from what? GT

it's not just expected variance, all of it is expectation. The value (price) of an asset today is its discounted future value. (If I want to sell you a car that is perfect today, but absolutely guaranteed to turn into a pile of rust tomorrow, or be stolen say, then the value of the car today is the same as a one day car rental, with that 1 day lease living in the near future.) If it has no expectation of value in the future, it has no present value. Since the future is always unknown, we always must speak of expectations.

variance of what, you ask. consider all possible future events, and what effect they have on the value of your asset. If you assign a probability to each event, you can compute an expected value for your asset (remembering to discount future values to today). Then, from that expected mean value, you can calcualate a standard deviation (i.e. variance) for all of the possible outcomes. Note that because the probabiliites of the future events all get rolled into the expected value, the probabilities do not figure into the variance calculation. And because variance is a square, it does not matter whether the deviations are plus or minus (remembering the probabilities of plus or minus events push the mean price up or down).

Would you be willing to flip a coin with me for a million dollar bet? seriously? probably not: too risky. Would you be willing to flip a coin with me for a dollar bet? sure, why not, little risk. Would you flip a coin with me for one dollar a million times? Sure you would, if we are stranded on a desert island. But wait, that would put a million dollars at risk at the same odds, same expected value, so why would you do it? Because it is low risk (actually, all risk, even low risk, should be avoided, so you technically shouldn't do this. But capital markets trade assets that earn/create money, so they have a positive payoff: the market is not the same as gambling.)

Would you flip a coin with Donald Trump for a million dollars... if you had a million Super Bowl viewers to go in on it with you? Sure, it would be kind of a kick. Once again, your risk would be low, even though the underlying transaction would be the same risky one that you previosly avoided. (This latter example illustrates why "the market" will not reward diversifiable risk.) You can construct many more examples like this. The difference between them will always turn out to be: your risk is measured by the variance of the outcomes. Furthermore, by constructing examples that have a positive payoffs, we can put a dollar value on your risk. Would you flip a coin that pays you 1.2 million against a loss of a million? No, still to risky. But if you could syndicate it with a bunch of Super Bowl viewers you would... how many would it take to get you to do it? (This is how insurance companies make money, pooling and syndicating risk, rather than the naive "they invest the money they hold" which you yourself could do without an insurance company)

Anyway, all of this is standard Finance Theory, just the sort of stuff that Encyclpediae are supposed to contain. Inasmuch as the Risk page here does not reflect this, it is not correct at least following a link from the Corporate Finance page. (I'll mention more more bit of the theory that got left out above: I said you need to discount the future values. The trick is, they need to be discounted at a rate which reflects the risk. It seems a bit circular, but it isn't, it's just tricky to get right.) brassrat

Actually, the definition of risk as "variance of return" is a subset of the larger definition of risk used by actuaries, statisticians, decision theoriests, etc. In each case, risk is a probability of a loss or, more generally, a probability and loss function, perhaps combined in terms of "utility" or risk-adjusted monetary values. The reason high variance in finance indicates risk is because the market usually ensures that high variance means there is a probability of a loss in an investment. To explain, imagine that you had an investment that had a mean annualized return of 100% and was within +/-70% of this return 99% of the time. (Yes, I know variance is the square of the std dev, I'm just simplifying the explanation). Since this investment had almost no chance of a negative return or even a return less than a reasonable cost of money, most would agree that this doesn't have risk, even though the variance is huge. The reason variance is often an indicator of risk in finance is because the market ensures that the mean return is such that the variance nearly always indicates some probability of a loss. But the variance of return alone would be inadequate for uses where some kind of market market does not force a probability of loss based on variance. So for the purposes of methods like Modern Portfolio Theory (MPT), the use of variance is an acceptable indicator of risk but it does not contradict the "probability of a loss" definition in any way. This, of course, is just standard decision theory, but I see a lot of people get confused when their first exposure to a quantified definition of the term "risk" is in finance and then they think it contradicts the more general, mathematical sense of the term. ERosa(talk) 03:36, 28 January 2008 (UTC)

Risk as a function of four variables

This sentence: "A "risk" is defined as a function of four variables: the probability that a threat will act on a vulnerability to cause an impact," doesn't make sense to me. Aren't threats and vulnerabilities defined in terms of probabilities?

Maybe it should read "A "risk" is defined as a function of three variables: the probability that there is a threat, the probability that there is a vulnerability, and the potential impact." The alien example would illustrate the first variable.

Definitions section too complex

The definitions section now starts in a very complex and convoluted way which makes the methods of Prof Norman Rasmussen's WASH-1400 study seem lucidity iself. Can we tone it down a bit, or postpone the maths to later in the article, or move one the simpler engineers definitions of risk further up the article - encyclopaedias need readers too! Bob akaLinuxlad 15:54, 22 December 2005 (UTC)

Proper definition

I added the proper definition of risk. Colignatus 01:02, 3 March 2006 (UTC)

I believe that the definition of Risk is too narrow. Risk is used to mean a number of different concepts by experts. Hazard, Consequence, Probability and Threat are all concepts attributed to the word risk. see Paul Slovichttp://www.ldeo.columbia.edu/chrr/documents/meetings/roundtable/white_papers/slovic_wp.pdf RickDwd 23:08, 18 August 2007 (UTC)

disambiguate risk from risk theory

In actuarial calculations the sum of random variables - or convolutions - are used in risk theory. Then a binary type of analysis is used to approximate a portfolio of many risks. The first r.v. is the frequency variable, usually a Poisson then the 2nd is the severity variable usually a gamma function or gamma random variable or exponential function. How do we break Risk Theory away from this article on Risk? John wesley 16:44, 22 March 2006 (UTC)

Danger, Inc.

There is also a US company, Danger, Inc.. I don't think it is notable enough in comparison to this article to deserve its own disambiguation page. Therefore I have just added a disambig note to the header. Derek Balsam00:26, 8 July 2006 (UTC)

Check definitions

I did some cleaning out of some of the atrocious language that was in this article, but there's a lot more to go. Can anyone who knows more than I check and make sure that the definitions aren't complete hokum that we have currently? I am very suspicious of seeing "per" suck on the bottom of the engineering definition fraction as it stands, and that equation doesn't seem to make a whole lot of sense- if it was simply probability of failure * cost of failure, we'd have an expected value for one incident, and if we multiply in the total number of widgets, then we'd have the expected total cost for everything. Those both make sense, but neither is what we have right now. SnowFire 07:43, 9 October 2006 (UTC)

Risk in Safety Engineering and Expected Value

The meaning of 'Risk' depends on the context. In Probabilistic risk assessment in Safety engineering, the risk is characterized such as the following:

1. the magnitude (severity) of the possible adverse consequence(s), and
2. the likelihood (probability) of occurrence of each consequence.

In this context, 'Risk' is only the bad/undesirable term i.e. BV x BP in the Expected Value.

In the fields other than the Safety Engineering, risk is likely to mean the total expected value, not only bad/undesirable term. (MHisajima 07:05, 11 February 2007 (UTC))

I'll disagree with two points. Actually, risk always means a probability and magnitude of a loss in every industry - although some people are confused about it. Risk is not total expected value like MHisajima states. Like cost, risk is never "desirable" by itself, but it may be acceptable if the benefit is high enough. In any situation where one can hold the expected benefit constant, reduced risk is always preferred. Since risk must often be taken in order to gain some benefits, some people have confused this with risk itself being "good". In this proper sense, I think the article adequately covers it and even explicitly agrees with MHisajimas first definition, although it could certainly be expanded.ERosa(talk) 03:12, 28 January 2008 (UTC)

Paragraphs in quotes

Two paragraphs in the section "In finance" are each entirely inside quotation marks. There is no reference of whether they are actually quotes and from where. They begin "A fundamental idea in finance is" and "For example, a US Treasury bond". -Pgan002 03:08, 9 March 2007 (UTC)

confusion between risk and uncertainty

The statement that Hubbard resolves the "ambiguity" between risk and uncertainty is misleading. Knight already resolves the ambiguity in the quote provided and Hubbard actually only contributes to the confusion that Knight was trying to avoid.

Specifically, uncertainty is immeasurable and non-quantitative. "Will going to counseling save my marriage?" Risk is measurable and can be specified. "What percentage of marriages fail when counseling is not sought after?" Note that these sample questions are not equivalent. While framing in the context of risk provides some definition to the problem, it does not remove all uncertainty around the problem. Arguable the second question can be viewed as converting an uncertainty statement into a risk statement; however, more appropriately, it only frames a portion of the uncertainty in the context of a risk.

In neither account, is risk defined as a "state of uncertainty". Uncertainty requires that something be undefined, and the risk question has very clear definition (a given percentage that one event occurs rather than another). I suggest pulling the Hubbard information, or at least framing it such that it does not presume to resolve an "ambiguity" that doesn't truly exist. 71.195.76.110 (talk) 05:04, 17 December 2008 (UTC)

Actually, uncertainty is widely described as a quantity in a variety of literature including actuarial science, decision science and probabilistic risk assessment. It is not immeasurable nor non-quantititative. You are simply presuming Knight's definition to be the accepted definition but Knight proposes a unique definition that has not been adopted by virtually anyone.DFLovett (talk) 02:33, 6 May 2009 (UTC)

Knight's statement is no longer state of the art, I recommend it's removal. Risk and uncertainty may be parameterized, not quantified, theoretically. It may be quantifiedpractically by parameterizing and bounding the risk to such a degree that risk is well-enough understood and therefore negligible. The above agreements disregard the bulk nature of risk-a single marriage for example is not quantitative, however, when hundreds of marriages, some with counseling, some without are compared, only then is risk usable.

Whatever the definition of Risk it is a special case of uncertainty. Examples and references would be from financial [CAP-M], [risk management] etc..GESICC (talk) 05:59, 10 January 2011 (UTC)GESICC

Project proposed

I'm appalled at how badly risk and related subjects are covered on Wikipedia, so I've proposed the creation of a separate WikiProject. My proposal can be found on the list of WikiProject proposals, and also the talk page of WikiProject: Business and Economics. All support much appreciated.Caissa's DeathAngel (talk) 08:59, 24 January 2008 (UTC)

I have stumbled across this article, a subject on which I have some knowledge, and am a bit surprised at the inconsistencies. The lead also makes very little sense. For now, have flagged it with an expert template, hope to return later. We can do better... Martinp(talk) 02:07, 30 September 2008 (UTC)

Risk caused by unpredictability of government intervention

in the economy. It's called what? It has a name but I forgot what it is. Below the Belt (talk) 20:01, 23 January 2009 (UTC)

Etymology

Is anyone else suspicious of the Greek derivation of the word? I can't get to the Luhmann reference for this, but it looks very odd. The OED gives

F. risque (17th cent.), ad. It. risco (see RISCO and cf. RISGO), rischio, of uncertain origin.]

- Webster's is similar. Nothing about roots in Greece.

And I don't really see how the story relates to the word. I don't think that the words 'may be traced' allow such a big assumption. --Myrvin (talk) 10:19, 28 August 2009 (UTC)

Business

This should be the jump of page for risk analysis and risk management in business. Management of any company has deal with those. The whole link chain in that area is fragmented. I'm no expert, but s.o. should have a look at this page and related pages. IFRS and Sarbanes Oxley requirements for corporations to have adequate risk management should be mentioned and relevant expression and pages linked through. 99.11.160.111(talk) 12:33, 6 December 2009 (UTC)

Captioning for rock climbing picture

Could someone more skilled at wikipediaing than me put a caption under that picture explaining the relevance of the image to the article please. Such as 'In activities such as rock climbing, participants are consciously taking risk.' Racooon (talk) 10:45, 4 October 2010 (UTC)

Done. Myrvin (talk) 20:28, 25 October 2010 (UTC)

Measuring Uncertainty-terminology

It is an issue that keeps coming up; the "quantification" of risk, or uncertainty. In the same sense that "you can't prove a negative," [I propose] you can't quantify a risk. It is rapidly becoming my professional opinion that the term “quantified” should not be used for risk, but a risk may be “parameterized,” bounded, scoped etc.. (Under some conditions; realization (no longer a risk), or an overwhelming amount of data, a risk might be parameterized to arbitrary detail, practically quantifying it, however, I do not believe it is the right term.) Seeking confirmation or references. GESICC (talk) 09:24, 12 January 2011 (UTC)GESICC

Major Restructuring

Risk is a vast topic, and although a first page that gives an overview of different types of risk is useful, that means it is necessarily shallow or too long, or more probably both. What do people think about breaking out different aspects of risk into sub pages?

I'm prepared to take on some of the math and finance risk, does anyone want to take others ?

Is this a good/bad idea ? DominicConnor (talk) 15:18, 16 March 2011 (UTC)

It is a good idea, good luck! Servalo (talk) 09:18, 2 May 2011 (UTC)

I've had a quick go restructuring the definitions of risk section as a list of examples and putting in some connective material. Unfortunately the article as a whole reads much the same way as that section -- a list of isolated examples and applications without much unifying structure. If you do take a look at the financial risk section, you might consider whether some of it should be moved to the financial risk page. Servalo (talk) 09:58, 2 May 2011 (UTC)