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What is Risk?

What is Risk?

Risk is no more a risky word to use. If you search for the word risk in one of the economics related newspaper you will see this word is used so jauntily. However, it is really an important subject that everybody should take care of it at every step in their lives. Let’s start defining risk then. Wikipedia defines risk as “the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome)”.

As we understand from the definition, there should be options for the players that choosing one option upon the others might lead an undesirable outcome. What if one player knows the result of one of the option? Is it still going to be a risk for the other players? If the result of an option has known then we cannot talk about the potential outcome and the definition of risk becomes irrelevant. Now, another question rises from this situation; how can you get this information to eliminate risk? Although a lot of scientists are working on this issue, it is still not an easy question to answer. However, it is one of the most important subjects to invest on before making any kind of big decision. You also need to know where to look at for the information or to whom you should ask to get this information.

The board game called ‘RISK’ is totally depends on the luck, right? I cannot be so sure about it. Some researchers already published research analysis on this subject by using Markov-chain analysis or stochastic simulation and found some interesting results (Table 1).

Table 1. The probabilities of all possible outcomes of one attacker dice roll and one defender dice roll.

Risk-table1

Source: http://en.wikipedia.org/wiki/Risk_(game), you can check for more explanations and sources there.

If you play ‘RISK’ with this information, it is not a risk for you and your opponent anymore although she/he is not aware of your information.

I would like to talk about more on risk before I start using this word jauntily.