BUISENESS MANAGEMENT
RISK MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Uncertainty concerning the occurrence of a loss.
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Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs.
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Defined as the relative variation of actual loss from expected loss can be statistically calculated by some measure of dispersion.
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Will evaluate risk and will strive to “pay” no more or less than the expected loss to avoid the risk.
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Detailed explanation-1: -The objective risk is the relative variation of actual loss from expected loss. As the number of exposure units under observation increases, objective risk declines. The subjective risk is uncertainty based on one’s mental condition or state of mind.
Detailed explanation-2: -Objective risk is the relative variation of actual loss from expected loss, while subjective risk is the uncertainty based on a person’s mental condition or state of mind (Rejda and McNamara 2021). In the risk and insurance field, Andersen et al.
Detailed explanation-3: -In our previous example, 10, 000 houses were insured, and objective risk was 10/100, 10 percent. Now assume that 1 million houses are insured. The expected number of houses that will burn is now 10, 000, but the variation of actual loss from the expected loss is 100. The objective risk is now 100/1000 or 1 percent.
Detailed explanation-4: -Objective risk is a risk whose nature can be established or reviewed. In life insurance, for example, sex, age, and illness history are objective risks.