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What is the relationship between probability and risk?

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September 24, 2013 2:24PM

Risk is defined as "A possibility of incurring loss or misfortune". So that means it doesn't always happen, which implies that it will happen a certain percentage of the time. This percentage is also known as the probability of it occurring, which means if you know the probability of the risk happening you can do a lot of things with it, such as find the expected value of the risk :)

If you were just told that it was possible that your house would burn down tomorrow, you wouldn't know what to expect, because you don't know the probability of this happening, but if you're told that something will happen with a 50% or even an 80% probability, you'll take the event more seriously.