Risk taking can be described as a type of conduct leading to harmful or dangerous results, or alternatively it may give the opportunity for a positive outcome. An example of risk taking is driving under the influence of alcohol or drugs. While it can give positive sensations to the driver, it poses a risk of accidents and injuries. Risk falls under the scope of the interest of several ...
Risk taking can be described as a type of conduct leading to harmful or dangerous results, or alternatively it may give the opportunity for a positive outcome. An example of risk taking is driving under the influence of alcohol or drugs. While it can give positive sensations to the driver, it poses a risk of accidents and injuries. Risk falls under the scope of the interest of several disciplines including psychology, sociology, philosophy and economics. The study of risk has evolved into an important interdisciplinary research topic since the 1970s. Effective risk management seeks to provide conditions for maximizing opportunities.
According to the general understanding of the concept, risk is necessarily associated with a potential negative outcome, although economics defines it in a more neutral way. One perception of risk is the likelihood that a hazard will cause an adverse outcome. The Australia/New Zealand Standard for Risk Management defines risk as "the possibility of something happening that impacts on your objectives. It is the chance to either make a gain or a loss. It is measured in terms of likelihood and consequence." The Guide of the International Organization for Standardization (ISO) also defines risk as the "effect of uncertainty on objectives."
The origin of the work risk is subject to debate. Some researchers argue that it was derived from the Arabic risq, which means something granted by God from which one can draw benefits. Others believe that the term comes from the Latin riscum, describing the danger created by a barrier reef for a sailor. A third theory has identified the Greek word rhiza as the origin as this refers to the hazards of sailing near cliffs. There is evidence that risk existed as a concept in Mesopotamia as early as 3200 BCE. The Babylonian Code of Hammurabi, dating back to 1700 BCE, along with laws in ancient China and Roman and Greek practices, also developed their concepts of risk and insurance, according to R.M. Trimpop, author of The Psychology of Risk-Taking Behaviour (1994).
Until the 20th century, risk in its own right was not subject to thorough analysis. Instead, it served as a framework for defining and understanding difference processes in history and social organization. French mathematician and philosopher Blaise Pascal (1623-1662) discussed risk in relation to religion. In the so-called Pascal's Wager, he discussed faith as a process of risk taking. As the existence of God cannot be determined through reason, Pascal believed that individuals can bet on different options, which incur various risks. According to his logic, a person takes most risks when they do not believe in God, as there is always a possibility that God exists.
In the 20th century, researchers started to focus on risk as a phenomenon. In the 1950s, scenario analysis, a method which involves the study of various possible future events, was widely used to study risk in the international political situation. Soon afterwards, the insurance industry adopted this method. Business circles started to pay more attention to risk and risk management strategies in the second half of the 20th century. The need for risk management was highlighted by major oil tanker accidents in the 1970s and a dramatic change in the banking sector since the 1980s.
Value at risk (VAR) is a contemporary approach to risk management. VAR can be used in both scientific research and investment operations. Its key component is volatility and VAR seeks to predict the worst scenarios and the largest possible loss of investment as losses are the biggest threat for investors. VAR, which is based on timing, confidence and loss percentage, involves three approaches to calculation. These include historical, variance-covariance and the Monte Carlo simulation. The historical method is based on the idea that history will repeat itself. It tries to predict future risks based on past facts. The forecasts of the variance-covariance method are based on average figures and standard deviations. The Monte Carlo simulation is a computational algorithm resting on repeated random sampling.
According to BBC News (31 December, 2008), scientists have found evidence of differences in the brain which may cause some people to act impulsively. The study from Vanderbilt University in Nashville, Tennessee, discovered that the biggest risk-takers processed the chemical dopamine differently to others who would perhaps not chase thrills or seek danger. Dr David Zaid said in the Journal of Neuroscience: "Our research suggests that in high novelty-seeking individuals, the brain is less able to regulate dopamine."