Defining risk and uncertainty

In this lesson

1. 0:00 Risk and uncertainty in decision making
2. 0:21 Defining risk with known outcomes
3. 0:41 Coin toss example of risk
4. 1:26 Uncertainty when outcomes unknown
5. 1:50 Real world uncertain situation example
6. 2:27 Managing risk for business rewards

About this lesson

You'll discover that risk occurs when possible outcomes are known and can be assigned probabilities based on past experience (like a coin toss with its 50/50 odds), while uncertainty arises when outcomes are genuinely unknown and probabilities cannot be reliably estimated (such as launching an entirely new product in an unfamiliar market). Understanding this difference is essential for P1 Risk Management and other advanced papers, as it determines which decision-making techniques you'll apply and how much reward you should expect to justify taking on each type of exposure. The lesson emphasises a core principle: businesses must take calculated risks to earn returns, but those risks must remain manageable and appropriately compensated—uncertain situations demand particularly careful evaluation because they carry far greater exposure.

Duration: 3m