On Risk - Building a Definition

Abstract

This article aims to build through the collection of inputs from prior research, regulatory input and practitioner’s experience, a comprehensive definition of risk.

Risk is not measurable uncertainty nor volatility. Risk is a three part concept: (1) risk is the potential that events may have an unexpected and noteworthy impact on results, i.e. a consequence of exposure while of pursuing objectives in an uncertain environment; (2) risk is ontological uncertainty, the unknown unknown; and (3) risk is the perception of risk, since how risk is individually perceived and socially amplified influences the risk experience and its subsequent effects.

So the challenge is to deal with risk understanding the impossibility of predicting the future. We should learn from the past but simultaneously accept that not all past lessons address every issue coming our way.

Keywords: Risk, Uncertainty, Exposure, Probabilities, Normal Distribution, Black Swan, Complexity Theory, Perception, Amplification

JEL Classification: C10, C53, D10, D70, D80, D81, D83, D84, E17, G10, G14