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Economist Survey on Risk

January 26th, 2004 · No Comments

Risk is inherent in every aspect of life and business. Writes The Economist:

It is not strictly true to say that life has become more risky; instead, some risks have become smaller, others have shifted to different people, and new ones have sprung up to take their place. This survey will review some of these shifts in the burden of risk and explore an extraordinary phenomenon: that when people confront risk, whether they are running governments, businesses or their own affairs, they tend to mismanage it.

Risk is different from uncertainty, which is unquantifiable. It is more of an educated gamble based on the odds. Taking such educated punts has become easier, thanks mostly to two factors.

The first is information technology, which has made it easier for people to study many past risks in the hope of learning from them…The second factor that has made it easier to quantify risks is the growing use of markets.

For all the progress in using such tools, perhaps the biggest obstacle to dealing effectively with risk remains human beings’ perceptions and misperceptions of it. People tend to get risk wrong in a variety of ways, often consistently. A growing awareness of this has been revolutionising economics. It has also been changing the way corporations, governments and citizens deal with the risks they face. This survey will argue that the largest gains will arise from coming to terms with this softer side of risk.

Tags: Management

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