Best Answer

A risk is a compound estimation between an impact severity (if the risk concretizes) and the associated probability of occurrence (its uncertainty). As an example, the nuclear risk is composed of its impact severity (i.e. Tchernobyl) multiplied by its probability of occurrence (hopefully very low in the developped countries, where nuclear plants are operated under adequate security policies), thus the nuclear risk is judged acceptable. Compare this to the risk associated with a water dam, where the impact is much reduced compared to a nuclear accident (a single region overflooded instead of a whole continent), but with higher probability (much more water dams have broken in human history than nuclear plants). Other useful points to take into consideration: If the probability of occurrence associated to a risk is 0, this is not a risk anymore: it's a no-case. If, on the other side, the probability is 1, this is not a risk either. It's a problem that must immediately be dealt with as such, and not managed as a risk anymore. What can be done to directly reduce a risk ? There are essentially two axes of action:

- Reduce the impact's severity

- Reduce the probability of occurrence For exemple, in the maganament of fire risk inside a building, these two axes are envisioned:

- Put a fire detector in every room and firewalls between building aisles

(this clearly reduces the impact in case of fire, since the fire is detected earlier)

- Forbid smoking inside the building (this contributes clearly to the probability reduction, since it's a proven insurance fact that nine fires out of ten are due to improperly out-put butts) Besides these direct actions, there are also indirect ones, like for exemple having a rescue plan ready to reduce the number of victims in case the risk concretizes, and delegating (part of) the risk to a third party, typically by taking an insurance, but this has more to do with the side-effects than directly with the risk itself.

User Avatar

Wiki User

โˆ™ 2007-10-15 09:14:18
This answer is:
User Avatar
Study guides


3 cards

A horse lives in a

A goat lives on aย 

U S A lives on aย 

See all cards
28 Reviews

Add your answer:

Earn +20 pts
Q: How does buying under risk differ from buying under uncertainty?
Write your answer...
Still have questions?
magnify glass
Related questions

Different between certainty risk and uncertainty risk?

Different between certainty risk and uncertainty ris

What is capital budgeting decision under uncertainty and risk?

Techniques of Evaluating Capital Budgeting Decisions.

What is risk and uncertainty?

There is a certain level of risk and uncertainty in everything in life. This is because nothing can be exact every time.

What are the differences between 'risk' and 'uncertainty'?

Risk is a dangerous choice that a person makes. An uncertainty is how someone feels about the decision.

What is the difference between risk and uncertainty?

what is the difference between risk and uncertinity

The uncertainty associated with decision making is referred to as?


What has the author Karl Henrik Borch written?

Karl Henrik Borch has written: 'The Economics of uncertainty' 'Risk and Uncertainty'

What has the author Marti G Subrahmanyam written?

Marti G. Subrahmanyam has written: 'The optimum structure of public prices under conditions of risk' -- subject(s): Accessible book, Public Finance, Risk 'A dynamic model of the regulated firm under uncertainty' -- subject(s): Accessible book, Rate of return, Uncertainty, Public utilities

Analysis of risk and uncertainty?

teri maa ki chut

What are synonyms for gamble?

risk, chance, venture, lottery, speculation, uncertainty

What is the different between risk and uncertainty?

First of all that is improper grammar. Second, uncertainty is not knowing or being sure of something. Risk is either a cool board game or doing something dangerous. doing something dangerous is taking a risk.

What term refers to the uncertainty inherent in projections of future ROIC?

Business risk

People also asked