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Ch. 1 - Risk
Math 3620 - Ch. 1 Risk & It's Treatment. Definitions of Types of Risk - F
| Term | Definition |
|---|---|
| Risk | Uncertainty concerning the occurrence of a loss |
| Loss Exposure | Any situation or circumstance in which a loss is possible, regardless of loss occurs |
| Objective Risk | The relative variation of actual loss from expected loss |
| Subjective Risk | Uncertainty based on a person's mental condition or state of mind |
| Chance of Loss | Probability that an event will occur |
| Objective Probability | Refers to long-run relative frequency of an event based on the assumption of an infinite number of observations & of no change in the underlying |
| Subjective Probability | The individual's personal estimate of the chance of loss |
| Peril w/ Examples | The cause of loss. Ex. property damage caused by fire, windstorm, or lightning, or damage to your car caused by collision w/ another vehicle |
| Hazard | Is a condition that increases the chance of loss |
| Physical Hazard | Is a physical condition that increases the frequency or severity of loss |
| Moral Hazard | Is dishonesty or character defects in an individual that increases the frequency or severity of the loss. Ex. like burning down own restaurant to claim insurance, suicide |
| Attitude Hazard | Is carelessness or indifference at a loss which increases the frequency or severity of a loss |
| Legal Hazard | Refers to the character of the legal system or regulatory environment that increase the frequency or severity of a loss |
| Pure Risk w/ Example | Situation in which there are only the possibilities of loss or no loss. Ex. earthquake |
| Speculative Risk w/ Examples | A situation in which either profit or loss is possible. Ex. investment or gambling |
| Diversifiable Risk w/ Example | Affects only individuals or small groups (car theft). It can be reduced or eliminated by diversification |
| Nondiversifiable Risk w/ Example | Affects the entire economy or large numbers of persons or groups within the economy (hurricane) |
| Systemic Risk | Risk of collapse of an entire system or entire market due to failure of a single entity or group |
| Direct Loss w/ Example | Financial loss that results from physical damage, destruction, or theft of the property. Ex. fire damage to a home |
| Indirect Loss w/ Example | Financial loss that results indirectly from the occurrence of a direct physical damage or theft loss. Ex. the additional living expenses after the fire |
Created by:
killerkite
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