Risk And Uncertainty Definition
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These concepts are related but not the same.
Risk and uncertainty definition. Risk and uncertainty the concept of fundamental uncertainty was introduced in economics by keynes 1921 1936 and 1937 and knight 1921. Risk is defined as unknowns that have measurable probabilities while uncertainty involves unknowns with no measurable probability of outcome. They felt a distinction should be made between risk and uncertainty. These can be business objectives or project objectives.
Uncertainty drives risk and risk exists where there is uncertainty. Uncertainty is a condition where there is no knowledge about the future events. In risk you can predict the possibility of a future outcome while in uncertainty you cannot. The words risk and uncertainty are often used interchangeably and for good reason.
A more complete definition of risk would therefore be an uncertainty that if it occurs could affect one or more objectives. Risk and uncertainty a situation of potential loss of an individual s or firm s assets and investment resulting from the fact that they are operating in an uncertain economic environment. Uncertainty and risk the comparative unpredictability of a firm s future business environment bringing with it the possibility that the firm might incur losses if future economic and market conditions turn out to be radically different from those anticipated by the firm in for example pricing its products moving into new activities etc. Risk can be measured and quantified through theoretical models.
Uncertainty is an unknown event quantity quality or outcome. The following are a few differences between risk and uncertainty. A risk is the effect of uncertainty on certain objectives. The risk is defined as the situation of winning or losing something worthy.
The difference between risk and uncertainty can be drawn clearly on the following grounds. In case of risk all possible future events or consequences of an action or decision are known. That does not however mean that they are the same thing. Risks can be measured and quantified while uncertainty cannot.
Some risks are insurable for example the risk of fire or theft of the firm s stock but not the firm s ability to survive and prosper. Risks can be managed while uncertainty is uncontrollable.
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