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Attitude to risk

Publish date 25 April 2018
Attitude to risk image

Risk is the way in which human consciousness tries to understand and classify all the forces and accidental circumstances in the world that can cause death, injury, damage, and loss. This text is based on the precondition that economic activity provides a mechanism by which humanity mitigates the impact of risk events on individuals. Therefore, the economic forms of organization (households, shops, farms, companies) are the additional mechanisms through which the elements in the overall financing of risk reduction reach individuals.

The more economic activity people undertake, collectively in companies or individually, the more risks they face and the more risky events are likely to occur.

If no means are found to allow a company or family that survived a risky event to overcome the consequences of the event, that family or company may die. Even if they survive, they may be less efficient participants in the economy (and hence less perinosus for everyone's potential well-being) than they would be if they had access to the resources needed for full disaster recovery. So everyone has an interest in every company, every worker and every consumer being able to return to full economic activity after experiencing a loss due to a risky event. It is for this reason that the Socialists argue that the government should take full and absolute responsibility for financing the losses.

Some people find the concept of risk appalling and feel that their modest income does not have enough resources to provide reasonable funding for risky events. If a landlord decides to take out insurance and has no savings to recover from a serious risk event, then a flood in his house from a river spill or sewer will be a disaster for him. Owners who think they can afford the least insurance are often the ones who need it most (or some equivalent) if they don't want to lose what little they have.

On the other hand, some people prosper by accepting the fact that "you have to speculate to accumulate" and take great risks in proportion to their wealth.

Also in the case of business circles - some are less willing to take risks, while others are even aggressive in this direction. This difference is sometimes a function of the life cycle stage reached by the business organization. A new start-up is willing to take risks that a more mature organization (and its shareholders) would find unacceptable. But this is not always a function of corporate maturity or unreliability. The nature of the regulatory regime, the attitude to risk on the part of major shareholders, environmentalists and the entrepreneurship of directors are all essential factors determining the degree of risk acceptance that a company shows. Some industries are usually more cautious about taking risks than others, but there are companies in each industry that take more and less risk. Part of the explanation is in the psychology of company executives. Much depends on the strategy that the company has decided to follow and more and more important are the conscious decisions about risk management and financing.

Risk accompanies human life, it cannot be avoided.

Economic activity is essential for providing resources that protect people from risky events and allow them to recover from them. All economic activity is at risk.

The consequences of risky events can be made bearable and overcome if funding is available to cover the cost of recovery. Insurance is the most well-known and proven means of financing risk, but there are other methods.


Source: David E. Bland "Insurance: Principles and Practice"