Economic Perspective

Desheng Dash Wu and David L. Olson
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Desheng Dash Wu: Stockholm University
David L. Olson: University of Nebraska

Chapter 11 in Enterprise Risk Management in Finance, 2015, pp 108-117 from Palgrave Macmillan

Abstract: Abstract An early economic view of risk was addressed by Frank H. Knight,1 who focused on the difference between uncertainty (a domain evading accurate measurement: ‘cases of the non-quantitative type’) and risk: (‘a measurable uncertainty, or “risk” proper’). Risk applied to cases where knowledge is available about future outcomes and their probabilities, while uncertainty applies to cases where there is knowledge about future outcomes but not about their probabilities. Risk was viewed as important, drawing upon Courcelle-Seneuil’s view2 that profit is due to the assumption of risk, compatible with von Thünen’s view3 that profit was, in part, payment for certain risks. This was also expressed by F. B. Hawley,4 who argued that risk-taking was the essential function of the entrepreneur. Knight viewed risk as the objective form of the idea, and reserved subjective elements to uncertainty. Since risk was measurable, those things to which it applied had statistical distributions available.

Keywords: Risk Management; Hedge Fund; Risk Tolerance; Capital Asset Price Model; Risk Transfer (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-46629-7_11

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DOI: 10.1057/9781137466297_11

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