9 Examples of a Risk Decision

John Spacey, June 21, 2023

A risk decision is a decision that involves enough risk that risk is a primary consideration. Most decisions involve some type of risk whereby every action and inaction has some probability of losses attached to it. For example, crossing the street typically has some level of risk as does hiding under your bed. The following are common examples of risk decisions.

Risk Taking

Choosing an action or inaction that specifically involves risk. For example, pursuing the career path that you want even if it is highly competitive and difficult to achieve.

Risk Avoidance

Choosing not to take a risk. This means that you have considered some action or inaction and decided against it due to the risks involved. For example, thinking that you would like to sleep in as opposed to going to work but then deciding that this is too great a risk to take.

Risk Mitigation

Taking a risk but also taking some action to reduce that risk. For example, pursuing a difficult career path but also having a realistic and relatively low risk fall-back plan.

Risk Transfer

Deciding to take a risk but to pay in advance to transfer that risk to a third party. For example, purchasing a home in an area prone to flooding but purchasing flood insurance to transfer some of the risk to an insurance company.

Risk Acceptance

Identifying a risk that you simply decide to accept. For example, an employer hires someone with no experience in the job but decides to simply take a risk on the person.

Risk Sharing

Deciding to share a risk with another party. For example, parents who agree to pay half for a drum set their teenager wants but isn't likely to use.

Acceptance of Residual Risk

Residual risk is the risk that remains after mitigating, transferring or sharing risk. An intuitive example is an insurance deductible or risks that aren't covered by insurance.

Acceptance of Secondary Risk

Secondary risks are the risks you create by trying to avoid, mitigate, transfer and share risks. This is an often overlooked type of risk that can actually be bigger than the original risk. For example, an employee who reduces the risk of being laid off by working very long hours who is creating a large number of personal risks for themselves.

Resilience

Beyond deciding how to manage specific risks, organizations and people have choices related to resilience -- the ability to dramatically reduce future risks before they occur. For example, studying hard and getting a good education may reduce a wide range of future risks by providing you with a valuable profession, knowledge and character traits such as self-discipline.

Next: Risk Analysis

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