In professional risk assessment, risk combines the likelihood of an event occurring with the impact that event would have and its different circumstances. Since objective risk is the actual number of losses over a given period of time for a given sample, it can differ significantly between different samples, even if those samples have the same expected losses. Statistically, the objective risk corresponds to the variance and therefore to the standard deviation of the sample. Insurance is the transfer of financial losses due to risks to a business or other organization, usually an insurance company. The company accepts this transfer for a periodic premium and benefits by collecting more premiums and drawing more from the investments from these premiums than it pays in claims, which are payments to the insured for the losses incurred. In another scenario, imagine a person being asked to predict the percentage probability that an upside-down coin will land with the head or the number up, their first reaction may be the mathematically true 50%. If 10 coin throws occur, which all cause the coin to land upwards, the person can change their percentage of chance to a number other than 50%, for example, .B. if they say that the probability that they will land upwards is 75%. Even knowing that the new prediction is mathematically inaccurate, the individual`s personal experience with the previous 10 coin throws has created a situation in which he chooses to use subjective probability. Subjective risk is defined as uncertainty – based on a person`s mental state or state of mind. This data is usually analyzed by actuaries and consultants. The results of this analysis are summarized in a underwriting manual that provides guidance on the types of risks that policyholders should accept and reject, how to assess the different types of risks, and much more.
Only the risk is insurable, but not all risks. Only economic damages that can be offset by the payment of money are insurable, and only if the expected losses can be determined. The risk management activity necessarily deals with risk control and management, that is, the effects of random events that are never expected or desired, but that occur to our detriment. Another driver in the same situation may find that the risk of being stopped is low. Subjective risk is what a person perceives as a possible adverse event. Most people know, for example, that they may have an accident, heart attack, or other health problem. Or that they will lose money when buying lottery tickets. The degree of subjective risk that people experience depends on their background and expected possibility of their occurrence – subjective probability. Someone who has lost a lot of money in the stock market will probably be more likely to invest in the market than someone who has benefited well. Subjective risk may change the risk taker`s behaviour if it is an undesirable risk. Thus, someone who has had a serious car accident could drive much more carefully than someone who has never had one.
One thing is clear: there is no uniform definition of risk. Economists, behavioural specialists, risk theorists, statisticians and actuaries each have their own concept of risk. The objective risk can be calculated statistically by a dispersion measurement, for example by the .B standard deviation or the coefficient of variation. Since objective risks can be measured, this is an extremely useful concept for an insurer or business risk insurance policy. If a person experiences a lot of mental uncertainty about the occurrence of a loss, that person`s behavior may be affected. High subjective risk often leads to conservative and cautious behavior, while low subjective risk can lead to less conservative behavior. A customer who has drunk a lot in a bar can foolishly try to go home. The driver may not know if he will return home safely without being stopped by the police for drunk driving. This mental insecurity is called subjective risk. The objective risk decreases as the number of commitments increases. Specifically, the objective risk varies inversely with the square root of the number of cases to be observed. Subjective risk is the perceived chance of something bad, based on a person`s opinion, emotions, instinctive feelings, or intuition.