Risk Perspectives
The purpose of this chapter is to give a brief review and discussion of the variety of concepts of risk in different disciplines and application areas, as a basis for describing the integrated approach taken in this book.
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Risk Perspectives
3.1
Purpose of a Comparative Review
The purpose of this chapter is to give a brief review and discussion of the variety of concepts of risk in different disciplines and application areas, as a basis for describing the integrated approach taken in this book. In general, the following elements form the essence of the risk concept: l
l
l
Possible outcomes (O). We are concerned about outcomes that affect what humans value and in particular undesirable outcomes. It is an issue who determines what undesirable means. We distinguish often between initiating events (undesirable events) (A) and their consequences (C). Example: The occurrence of a terrorist attack (A) and the associated consequences (C). Uncertainties (U), and probabilities (P) specifying the likelihood of each outcome. Ways of aggregating the possible outcomes allowing for comparisons and the setting of priorities, for example expected value (EV), expected net present value (E[NPV]) and expected utility (EU).
Based on these dimensions –the possible outcomes, uncertainty and the rule of aggregation for practical purposes – we can structure the way risk is conceptualized and used in various disciplines and application areas. See Table 3.1. This structure is based on Renn (1992b, 2008:12ff).
3.2
The Technical Risk Perspective
If large data bases are available, as in the world of the insurance companies, statistical analysis based on large samples can be used for prediction purposes. An application of this approach may be the prediction of fatalities in car accidents for the coming year. From the statistical data about fatal accidents in previous years, T. Aven and O. Renn, Risk Management and Governance, Risk, Governance and Society 16, DOI 10.1007/978-3-642-13926-0_3, # Springer-Verlag Berlin Heidelberg 2010
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Purpose
Main scope of risk concept Predominant theories/ methods
Risk description
Risk perspective
Monitoring the risk level, identify critical items, prediction. Support decisions on the risk
Sampling, estimation, prediction, and testing hypotheses
Universal
Statistical analysis (including the Actuarial approach) Statistics. Large population averages
Probabilistic risk analysis
Integrated approaches Economics of risk Psychology of risk
Probabilities and Expected Values (P & EV)
Probabilities and Expected Values (P & EV)
Outcome uncertainties Probabilities and expected relative to the utility. expected value, measured by the variance and quantiles (Value at risk). Expected utility (EU) and Expected net present value E[NPV] Health and Safety Universal Individual environment perceptions Psychometrics Hazard identification. Basic risk assessments Statistical analysis. Expected utility methods such as Dose–response theory, Cost event trees and assessments, benefit analysis, fault trees. exposure Portfolio theory Consequence assessments. modeling. Experiments, health surveys Show how people Support decision Identify risk Identify risk assign making on policy contributors and contributors and probabilities selection
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