The dictionary of market economy defines risk as a “future and probable event, the production of which could cause certain losses. It can be predictable when the factors that would bring losses can be anticipated and unpredictable when it is determined by fortuitous situations ”. It is the likelihood of hitting threat, the need to encounter trouble or experiencing harm. The risk appears, according to this conception, in the form of a danger that man tries to prevent or at least mitigate its undesirable effects.
For example. People who shop online take the risk of losing money made by bogus shops and purchases. On the other hand, there is a possibility of gaining when making a purchase from trusted shops like https://vaatwasser-info.nl/.
Facets of risk: the possibility of losing or the chance of winning
According to the Latin meaning, the term risk refers not only to the chance of losing but also to the chance of winning. However, the term “risk” tends to be used in everyday language to mean the danger of loss. The Latin word “risk” had both negative and positive connotations. Risk must be viewed through both its valences, namely pure risk and speculative risk.
Risk and uncertainty
In order to better understand the notion of risk, it is important to differentiate risk and uncertainty.
Risk is the term for circumstances by which goal possibilities could be determined for conceivable results.
Uncertainty, conversely, is the term for circumstances or situations relating to not enough facts to recognize goal possibilities.
Pure risk and speculative risk
Pure risk only considers the possibility of loss without considering the possibility of winning, designating only the danger of a loss, without considering the possibility of winning. Examples of pure risk include potential damage from fire, flood, or earthquake, or the possibility of premature death as a result of fatal accidents or illnesses.
Speculative risk covers both the possibility of gain and the danger of loss. Business or gambling involves speculative risk.
The distinction between pure risk and speculative risk is a fundamental premise of insurance theory. Thus, the risk involves the dispersion of possible results compared to their average in a positive sense (relative gains) and negative (relative losses). From this mindset, risk could be explained as the probability of good or bad outcomes.
The evaluation of likely effects is comparable. The good effect surpasses the expected average, whilst the bad effect is lower compared to the expected average. Virtually any financial decision entails some amount of risk. The person deciding will have to manage the risk in order to receive its benefits.