Which of the following statements about the ‘What is Risk?’, ‘Risk and Human Bias’ and ‘What is Risk Management?’ sections of the lecture material are TRUE:If the probability of a pure-risk event occurring is ‘almost certain’ but the impact is only ‘minor’ then it would normally only require a low level of risk management planning because it only has a minor impact.An individual can either lose $100 for certain (with 100% probability) or take a gamble. The gamble involves a 10% probability of losing $1,000 and a 90% probability of losing $0. A typical person exhibiting human bias would usually take the gamble, even though the rational risk-averse choice would be to take the certain loss of $100.
Question
Which of the following statements about the ‘What is Risk?’, ‘Risk and Human Bias’ and ‘What is Risk Management?’ sections of the lecture material are TRUE:If the probability of a pure-risk event occurring is ‘almost certain’ but the impact is only ‘minor’ then it would normally only require a low level of risk management planning because it only has a minor impact.An individual can either lose 1,000 and a 90% probability of losing 100.
Solution
The first statement is TRUE. The level of risk management planning required is often determined by both the probability of the event and the impact of the event. In this case, even though the probability is 'almost certain', the impact is only 'minor', so it would typically require a low level of risk management planning.
The second statement is FALSE. A typical person exhibiting human bias would usually avoid the gamble and take the certain loss of 1,000), even if there is a chance they could lose nothing.
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