Talk:Risk

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Contents 1 diambiguate risk from risk theory 2 Complex 3 Cleaning up this discussion page 4 A few words too many? 5 Why is regret linked here? 6 Numbers 6.1 numbers presenting risk to body? 7 Some words in the definition to no avail? 8 Why future? 9 The risk in this situation is the risk that the market value of your asset declines 10 Why harm? 11 Come back Norman (all is forgiven) 12 Framing 13 Proper definition 14 Danger, Inc. 15 Danger as a middle name 16 Flowery language in the introduction 17 Yikes. 18 Risk in Safety Engineering and Expected Value 19 Paragraphs in quotes

[edit] diambiguate 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 artcile on Risk? John wesley 16:44, 22 March 2006 (UTC)

Risk is a board game. You take over countries.

[edit] Complex

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.

[edit] Cleaning up this discussion page

This discussion page is a bit of a mess, no? It is not easy to understand all the various formatting. What's a quote, what's discussion... I advocate deleting most of it. Anyway, I'm splitting it into sections. brassrat

[edit] A few words too many?

"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)

"Risk is potential future harm".

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.

[edit] Why is regret linked here?

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...

[edit] Numbers

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 should never 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:terrist where 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.

[edit] 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 the Kyoto 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.
  === framing ===

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

[edit] Some words in the definition to no avail?

"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".

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

[edit] 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

[edit] 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

[edit] 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

[edit] Come back Norman (all is forgiven)

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 aka Linuxlad 15:54, 22 December 2005 (UTC)

[edit] Framing

Although it is not relevant for the explanation, per se, I felt that it was necessary to correct the misconception that speeding is a leading cause of road deaths / accidents. 84.9.67.97 01:06, 5 February 2006 (UTC)

and I've put it back as inattention makes no sense in the context of the article. CambridgeBayWeather (Talk) 01:09, 5 February 2006 (UTC)

Touche ;) - drink driving makes more sense 84.9.67.97 01:11, 5 February 2006 (UTC)

Agreed, but I've made the link to avoid the redirect and it goes to Driving under the influence. CambridgeBayWeather (Talk) 01:20, 5 February 2006 (UTC)

[edit] Proper definition

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

[edit] 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 Balsam 00:26, 8 July 2006 (UTC)

[edit] Danger as a middle name

Danger redirects to Risk but warrants mention in these notes. Danger is a pop-culture faux middle name. Ex. Austin 'Danger' Powers or RJ 'Danger' Kelford

[edit] Flowery language in the introduction

"this startling fact"

[edit] Yikes.

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)

[edit] 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))

[edit] 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)