Risk aversionIn economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome. Risk aversion explains the inclination to agree to a situation with a more predictable, but possibly lower payoff, rather than another situation with a highly unpredictable, but possibly higher payoff.
RiskIn simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is "effect of uncertainty on objectives".
Loss aversionLoss aversion is a psychological and economic concept which refers to how outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses compared to equivalent gains acquired. Kahneman and Tversky (1992) have suggested that losses can be twice as powerful, psychologically, as gains. When defined in terms of the utility function shape as in the Cumulative Prospect Theory (CPT), losses have a steeper utility than gains, thus being more "painful" than the satisfaction from a comparable gain as shown in Figure 1.
Social stressSocial stress is stress that stems from one's relationships with others and from the social environment in general. Based on the appraisal theory of emotion, stress arises when a person evaluates a situation as personally relevant and perceives that they do not have the resources to cope or handle the specific situation. The activation of social stress does not necessarily have to occur linked to a specific event, the mere idea that the event may occur could trigger it.
Ambiguity aversionIn decision theory and economics, ambiguity aversion (also known as uncertainty aversion) is a preference for known risks over unknown risks. An ambiguity-averse individual would rather choose an alternative where the probability distribution of the outcomes is known over one where the probabilities are unknown. This behavior was first introduced through the Ellsberg paradox (people prefer to bet on the outcome of an urn with 50 red and 50 black balls rather than to bet on one with 100 total balls but for which the number of black or red balls is unknown).
Psychological stressIn psychology, stress is a feeling of emotional strain and pressure. Stress is a type of psychological pain. Small amounts of stress may be beneficial, as it can improve athletic performance, motivation and reaction to the environment. Excessive amounts of stress, however, can increase the risk of strokes, heart attacks, ulcers, and mental illnesses such as depression and also aggravation of a pre-existing condition.
Decision-makingIn psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.
Financial riskFinancial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent. A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Harry Markowitz in 1952 with his article, "Portfolio Selection".
Risk-seekingIn accounting, finance, and economics, a risk-seeker or risk-lover is a person who has a preference for risk. While most investors are considered risk averse, one could view casino-goers as risk-seeking. A common example to explain risk-seeking behaviour is; If offered two choices; either 50asasurething,ora50100 or nothing, a risk-seeking person would prefer the gamble. Even though the gamble and the "sure thing" have the same expected value, the preference for risk makes the gamble's expected utility for the individual much higher. Risk assessmentRisk assessment determines possible mishaps, their likelihood and consequences, and the tolerances for such events. The results of this process may be expressed in a quantitative or qualitative fashion. Risk assessment is an inherent part of a broader risk management strategy to help reduce any potential risk-related consequences. More precisely, risk assessment identifies and analyses potential (future) events that may negatively impact individuals, assets, and/or the environment (i.e. hazard analysis).
Stress (biology)Stress, either physiological, biological or psychological, is an organism's response to a stressor such as an environmental condition. Stress is the body's method of reacting to a condition such as a threat, challenge or physical and psychological barrier. There are two hormones that an individual produces during a stressful situation, well known as adrenaline and cortisol. There are two kinds of stress hormone levels. Resting (basal) cortisol levels are normal everyday quantities that are essential for standard functioning.
Antisocial personality disorderAntisocial personality disorder (ASPD or APD) is a personality disorder characterized by a limited capacity for empathy and a long-term pattern of disregard or violation of the rights of others. Other notable symptoms include impulsivity and reckless behavior (including substance abuse), a lack of remorse after hurting others, deceitfulness, irresponsibility, and aggressive behavior. Symptoms of ASPD must be present before the age of 15 to receive a diagnosis.
Risk premiumA risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky return less the risk-free return, as demonstrated by the formula below. Where is the risky expected rate of return and is the risk-free return. The inputs for each of these variables and the ultimate interpretation of the risk premium value differs depending on the application as explained in the following sections.
Sympathetic nervous systemThe sympathetic nervous system (SNS) is one of the three divisions of the autonomic nervous system, the others being the parasympathetic nervous system and the enteric nervous system. The enteric nervous system is sometimes considered part of the autonomic nervous system, and sometimes considered an independent system. The autonomic nervous system functions to regulate the body's unconscious actions. The sympathetic nervous system's primary process is to stimulate the body's fight or flight response.
Group decision-makingGroup decision-making (also known as collaborative decision-making or collective decision-making) is a situation faced when individuals collectively make a choice from the alternatives before them. The decision is then no longer attributable to any single individual who is a member of the group. This is because all the individuals and social group processes such as social influence contribute to the outcome. The decisions made by groups are often different from those made by individuals.
Autonomic nervous systemThe autonomic nervous system (ANS), formerly referred to as the vegetative nervous system, is a division of the nervous system that supplies internal organs, smooth muscle and glands. The autonomic nervous system is a control system that acts largely unconsciously and regulates bodily functions, such as the heart rate, its force of contraction, digestion, respiratory rate, pupillary response, urination, and sexual arousal. This system is the primary mechanism in control of the fight-or-flight response.
Parasympathetic nervous systemThe parasympathetic nervous system (PSNS) is one of the three divisions of the autonomic nervous system, the others being the sympathetic nervous system and the enteric nervous system. The enteric nervous system is sometimes considered part of the autonomic nervous system, and sometimes considered an independent system. The autonomic nervous system is responsible for regulating the body's unconscious actions.
Market riskMarket risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most commonly used types of market risk are: Equity risk, the risk that stock or stock indices (e.g. Euro Stoxx 50, etc.) prices or their implied volatility will change. Interest rate risk, the risk that interest rates (e.g. Libor, Euribor, etc.) or their implied volatility will change.
Occupational stressOccupational stress is psychological stress related to one's job. Occupational stress refers to a chronic condition. Occupational stress can be managed by understanding what the stressful conditions at work are and taking steps to remediate those conditions. Occupational stress can occur when workers do not feel supported by supervisors or coworkers, feel as if they have little control over the work they perform, or find that their efforts on the job are incommensurate with the job's rewards.
Risk managementRisk management is the identification, evaluation, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.
