The Notion of Risk and Probability

Massimiliano Maggioni and Giuseppe Turchetti
Additional contact information
Massimiliano Maggioni: University of Milano
Giuseppe Turchetti: Sant’Anna School of Advanced Studies

Chapter 2 in Fundamentals of the Insurance Business, 2024, pp 17-34 from Springer

Abstract: Abstract This chapter introduces the concept of risk. Many definitions have been offered to explain what is meant by risk in the literature. Notion of probability is described and differences between classical (or mathematical) probability, statistical (or frequentist) probability and subjective probability are explored. The information asymmetries between the insurer and the insured are defined. The reader can learn the definition and examples of adverse selection; morale hazard and moral hazard. In the paragraphs, it is explained that everyone has their own risk appetite. Based on to the utility function of Von Neumann–Morgenstern it is possible to determine the behaviour of individuals according to their attitude towards the benefit/result obtained. Behavioural finance and cognitive psychology on decision-making processes in conditions of uncertainty shown how often the consumer, in complex situations, makes choices based on simplified judgement mechanisms.

Keywords: Uncertainty; Classical or mathematical probability; Statistical or frequentist probability; Subjective probability; Risk; Pure risk; Speculative risk; Fundamental risk; Particular risk; Personal risk; Property risk; Liability risk; Risk management; Risk assessment; Risk mapping; Risk mapping matrix; Principle of mutuality; Risk pooling; Conditions of insurability; Law of large numbers; Information asymmetry; Adverse selection; Morale hazard; Moral hazard; Utility function; Risk neutral individuals; Risk averse individuals; Risk seeking individuals; Behavioural finance (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-319-52851-9_2

Ordering information: This item can be ordered from
http://www.springer.com/9783319528519

DOI: 10.1007/978-3-319-52851-9_2

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().