The Business of Risk

by Peter Gerald Moore

Risk pervades virtually all areas of human endeavour, whether these endeavours be for social, personal, commercial or national purposes. It is vitally important for all those involved in decision making in these areas to know how to evaluate the risks involved in any action if choices are to be made meaningfully. In this introduction, Professor Moore begins by summarising the basic concepts that lie behind a formal approach to decision making under conditions of uncertainty. There then follows a discussion of general questions of the determination of probabilities that measure risk, first the theoretical approach then the collective principle allied to the actuarial approach and the controversial subjective or personal approach. A chapter on measuring utility, or worth, leads in to the second part of the book in which more specific questions about handling risk are studied by looking at examples drawn from a number of different fields: commercial, industrial and financial investment decisions, portfolio management, physical risks, medical diagnosis and finally questions of public policy. The book ends with three appendices covering the basic principles for the handling of probabilities, the various decision making procedures that have been advanced and ways in which risk reduction can be achieved. This account of risk will not only be an essential purchase for practising managers, but will also be necessary reading for those students seeking qualification in business and management studies, accounting, banking, insurance and public administration.

• Format: Paperback
• Language: English
• ISBN: 052128497X
• ISBN13: 9780521284974
• Release Date: January 1984
• Publisher: Cambridge University Press
• Length: 256 Pages
• Weight: 0.80 lbs.
• Dimensions: 0.6" x 5.9" x 8.9"

Customer Reviews

Dealing with Risky Decisions

This impression of the book is one of simplicity and easy to understand. The first chapter introduces many everyday situations in which risk evaluation through mathematical modeling warrants better decisions. The descriptions are in post part simple for the hard to understand topics. However, there are a few chapters that are very technical. There is a strong emphasis on statistical processes such as relative frequencies and sample sizes. The amount of mathematical formulas and their concepts is overwhelming. They can actually give a negative, yet distorted, view of the effectiveness of the probabilistic models. Several measures for risk assessments are given, however, I believe the coefficient of variation (CV) is more appropriate measure since it measures the risk relative to the outcome of the decision. The author successfully uses graphs, charts, drawings and tables to illustrate the complicated concepts and demonstrate the outcome possibilities. The actual illustration of the decision tree in the first chapter allows a person to view the words "draw a line from here to her". Some people find reading these concepts less fulfilling than picturing them. More often than not, people are visual rather that cerebral. They like pictures. The discussion on the concept of utility is more comprehensive and understandable. Dr. Moore applies an example of the utility associated with purchasing fire insurance, by showing that it is better to buy fire insurance when a person owns one building versus a large company which owns many buildings, it helps a homeowner to weigh the benefits of having the insurance verses the cost of purchasing insurance. He asks the question, is a person willing to risk losing a home worth over $50,000 to not spend about $100 per month. What is all this worth? This, in short, is the concept of utility. The value of the utility is calculated at the point when a person becomes indifferent to taking the risk of paying the money to buy the insurance. This makes it realistic and applicable to everyday situations. The in-depth discussions in each of the succeeding chapters about the risks and outcomes in things people encounter on a daily basis are intriguing. The most captivating chapters dealt with physical risks and medical risks. These are issues people face daily when driving to work or having minor surgery. Human nature causes people to view the worst case scenario. They do not, however, consider mitigating factors that can either increase or decrease risk. Theses can include speed, weather, mileage and mode of transportation. Motorcycles have more risk than automobiles; automobiles have more risk than trains; and trains have more risk than airplanes. In every case, the cost/benefit factor is explained and evaluated. Available information minimizes risk and regulated the cost/benefit analysis. The more information a person can obtain to determine the outcomes of a particular situation, the lower the