Principles of Risk Management & Insurance Exam 1 with 100% correct answers verified

Risk - Uncertainty concerning the occurrence of a loss Also used to identify the property or life that is being considered Risk Management - identifies loss exposures faced by an organization and selects the most appropriate techniques Uncertainty - situations or circumstances where such probabilities cannot be estimated Pure Risk - When there is uncertainty as to whether loss will occur, no possibility of gain (Your house burning down, earthquake, getting in a car accident, etc.) Objective Risk - Measures both dimensions, the probability of loss and severity of loss - simultaneously Actual loss vs. expected loss Speculative Risk - when there is uncertainty about whether an event can produce either a profit or a loss (Gambling, investments, etc.) Subjective Risk - the mental state of an individual who experiences doubt or worry as to the outcome of a given event Ex: Some people think flying in an airplane is unsafe, some think its totally safe Objective probability - relative variation of an actual loss from expected loss Subjective probability - the individual's personal estimate of the chance of lossDifference between Subjective and Objective Risk - differs from subjective risk in the sense that it is more precisely observable and therefore measurable