Non-transferable risk and Probability: Difference between pages

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Non-transferable risks are risks which must be borne by an organisation.  
The study of chance providing an objective measure of uncertainty.




Non-transferable risks might be avoided or accepted and retained or reduced as appropriate.  
Probabilities range between 1 (=100%) and 0 (=0%).


In the case of non-transferable business risks (which by definition are not avoided) it is important that the organisation has a distinctive competence in the relevant areas.  
A probability of 100% means that an event is considered certain to occur.  


For example, a pharmaceutical company's non-transferable risks would include the risk that failure to gain approval for use of a new drug means that the research and development costs have been wasted.
A probability of 0% means that an event is considered certain not to occur.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.
This simple model of a coin flip assumes that the only two possibilities are a head or a tail.  Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:
#The coin landing on its edge 'more often than it's supposed to'.
#The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.




== See also ==
== See also ==
* [[Committed risk]]
* [[Black swan]]
* [[Risk management]]
* [[Conditional probability]]
* [[Transferable risk]]
* [[Confidence interval]]
* [[Uncommitted risk]]
* [[Frequency distribution]]
 
* [[Mutually exclusive]]
[[Category:The_business_context]]
* [[Poisson distribution]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Revision as of 15:19, 8 June 2016

The study of chance providing an objective measure of uncertainty.


Probabilities range between 1 (=100%) and 0 (=0%).

A probability of 100% means that an event is considered certain to occur.

A probability of 0% means that an event is considered certain not to occur.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


This simple model of a coin flip assumes that the only two possibilities are a head or a tail. Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:

  1. The coin landing on its edge 'more often than it's supposed to'.
  2. The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.


See also