CH 0 - 6 Measuring risk

Question 1

🔹 Measuring Risk:

Answer 1

Earlier studies focused on measuring risk through variability of outcomes.

Now, a broader formula is used:
Risk = Probability × Impact

However, stakeholder perception of this quantified risk depends on their:
* Risk appetite
* Objectives

Question 2

🔹 (i) Why Different Individuals Have Different Risk Appetites:

Answer 2

• 👵 Age – Older people are more risk-averse due to less time to recover from losses.
• 💰 Wealth – Wealthier individuals may be more willing to take risks and value insurance less.
• 👨‍👩‍👧 Dependants – People with financial responsibilities (like children) tend to be more cautious.

Question 3

🔹 (ii) Same Risk, Different Perceptions – Example:

Answer 3

🌲 Forest Investment:
* An individual seeking regular income may see this as risky due to delayed returns.
* A charity focused on environmental protection may see it as a positive, long-term impact, not risky at all.

Question 4

🔹 Key Takeaway:

Answer 4

Risk isn’t just about numbers — it’s also about how people perceive and react to it, based on their situation and goals.