Describing Risk

* To measure risk we should know:

 1) All the outcomes which are possible.

 2) The probability that each outcome will occur.

* Interpreting Probability

- The probability of the given outcome to occur

* Interpreting Probability

- The probability which the given outcome will occur

- Objective Interpretation

• Based on frequency which is observed of past events

- Subjective

• Based on experience or perception with or without an observed frequency

-  Different information or abilities to process the same information can influence subjective probability