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1.7: The Nature of Risk - Losses and Opportunities (Exercises)
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- What are underlying objectives for the definition of risk?
- How does risk fit on the spectrum of certainty and
- Provide the formal definition of risk.
- What are three major categories of risk attitudes?
- Explain the categories and risk and provide examples for each
- What are exposures? Give examples of exposures.
- What are perils? Give examples of perils.
- What are hazards? Give examples of hazards.
- In a particular situation, it may be difficult to distinguish
between moral hazard and morale hazard. Why? Define both
- Some people with complete health insurance coverage visit
doctors more often than required. Is this tendency a moral hazard,
a morale hazard, or simple common sense? Explain.
- Give examples of perils, exposures, and hazards for a
university or college. Define each term.
- Give examples of exposure for speculative risks in a company
such as Google.
- Inflation causes both pure and speculative risks in our
society. Can you give some examples of each?
- Define holistic risk and enterprise risk and give examples of
- Describe the new risks facing society today. Give examples of
risks in electronic commerce.
- Read the box "The Risks of E-exposures" in this chapter. Can
you help the risk managers identify all the risk exposures
associated with e-commerce and the Internet?
- Read the box "Is Airport Security Worth It to You?" in this
chapter and respond to the discussion questions at the end. What
additional risk exposures do you see that the article did not
- One medical practice that has been widely discussed in recent
years involves defensive medicine, in which a doctor orders more
medical tests and X-rays than she or he might have in the past—not
because of the complexity of the case, but because the doctor fears
being sued by the patient for medical malpractice. The extra tests
may establish that the doctor did everything reasonable and prudent
to diagnose and treat the patient.
- What does this tell you about the burden of risk?
- What impact does this burden place on you and your family in
your everyday life?
- Is the doctor wrong to do this, or is it a necessary
- Is there some way to change this situation?
- Thompson’s department store has a fleet of delivery trucks. The
store also has a restaurant, a soda fountain, a babysitting service
for parents shopping there, and an in-home appliance service
- Name three perils associated with each of these
- For the pure risk situations you noted in part 1 of this
exercise, name three hazards that could be controlled by the
employees of the department store.
- If you were manager of the store, would you want all these
operations? Which—if any—would you eliminate? Explain.
- Omer Laskwood, the major income earner for a family of four, was
overheard saying to his friend Vince, “I don’t carry any life
insurance because I’m young, and I know from statistics few people
die at my age.”
- What are your feelings about this statement?
- How does Omer perceive risk relative to his situation?
- What characteristic in this situation is more important than
the likelihood of Mr. Laskwood dying?
- Are there other risks Omer should consider?
- The council members of Flatburg are very proud of the proposed
new airport they are discussing at a council meeting. When it is
completed, Flatburg will finally have regular commercial air
service. Some type of fire protection is needed at the new airport,
but a group of citizens is protesting that Flatburg cannot afford
to purchase another fire engine. The airport could share the
downtown fire station, or the firehouse could be moved to the
airport five miles away. Someone suggested a compromise—move the
facilities halfway. As the council members left their meeting that
evening, they had questions regarding this problem.
- What questions would you raise?
- How would you handle this problem using the information
discussed in this chapter?