Risk

Risk refers to the element of chance surrounding the occurrence - or non-occurrence - of a future event, typically arising from random circumstances. It is a form of uncertainty in which a decision-maker can assign a probability to the likelihood of a harmful outcome. Risk characterizes a situation where future outcomes are both foreseeable and objectively measurable through probability theory. This distinguishes it from uncertainty, where event probabilities cannot be quantified and future outcomes remain unpredictable (difference between risk and uncertainty). Risk also differs from certainty, where an economic agent has full knowledge of future events (with a probability of one).

The concept of risk takes on different meanings depending on the context. In business, risk refers to the potential losses an entrepreneur faces when investing personal capital in an enterprise. In the insurance sector, risk pertains to the possibility that a covered event will occur and to the scale of any resulting losses, which together help insurers calculate the premium owed by the policyholder. In lending, risk is tied to the potential default of a borrower. In finance, risk is both an essential component and a primary driver of speculative investment (speculation).