Action
All actions are surrounded in risk. For example, crossing the street is risk taking whereby you could be injured.Inaction
Inaction is also surrounded in risk such that risk taking is an inescapable element of life. For example, avoiding crossing the street by staying in bed may represent a risk to your education or career.Calculated Risk Taking
As risk surrounds all action and inaction, the best that an individual can do is try to pick the risks that are the most likely to create rewards and least likely to create losses. This is known as calculated risk taking and implies that you have taken steps to manage risk. For example, a parent who always puts life jackets on themselves and their children when they go boating.Unmanaged Risk
Taking risk in an uncalculated and unmanaged way. This can include any risk taking that doesn't examine ways to reduce, mitigate, transfer or share risk. For example, driving in an unsafe manner without wearing your seatbelt. A failure to manage risk can be viewed as reckless, irresponsible or negligent.Secondary Risk
Secondary risk is the risk that you create by managing risk. For example, if you stop jogging to reduce the risk of a knee injury you may increase your risk of becoming out of shape or unhealthy. Secondary risk is an important consideration in any risk management effort.Minimax Criterion
A minimax criterion is a willingness to pay any price to minimize a dread risk. For example, people may only be willing to travel by plane if the risk of an accident has been minimized with no expense spared. This can be viewed as risk taking with large costs to try to minimize risk.Maximax Criterion
A maximax criterion is acceptance of a large probability of a loss in exchange for maximizing your total potential gain. For example, buying a lottery ticket whereby you are almost certain to lose but their is an incredibly small chance of a large win.Risk Tolerance
Between the extremes of a minimax and maximax criterion are many approaches to risk that are collectively known as risk tolerance. In most situations it doesn't make sense to minimize risk or maximize gains but rather to choose an approach with an attractive risk reward ratio whereby you are comfortable with potential losses. For example, a investor who doesn't want to take large risks with their investments but also needs to achieve a market average return.Resilience
Resilience is the ability to thrive under stress such as real life conditions. This can be increased with calculated risk taking. For example, a student who is scared of public speaking who nevertheless takes risks by volunteering to give presentations. This may help to build their resilience with time as an exercise in facing fears.| Overview: Risk Taking | ||
Type | ||
Definition | Choosing an action or inaction that involves the potential for a loss. | |
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