Introductory Risk Primer Portions sourced from Wikipedia

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Introductory Risk Primer Portions sourced from
Wikipedia

• Professor Doug Cerf
• Bren School of Environmental Science and
  Management
• Environmental Risk Management
• Winter 2008

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Risk Definition

• Risk is the potential impact (positive or
  negative) to an asset or some characteristic of
  value that may arise from some present process
  or from some future event.
• In everyday usage, "risk" is often used
  synonymously with "probability" and restricted to
  negative risk or threat.
• In professional risk assessments, risk combines
  the probability of an event occurring with the
  impact of that event.

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The engineering definition of risk
Example (1) Event Driving a car in
town Probability of accident.02, 700 events per
year,1,000 deductible/event Risk .03 (must be
evaluated against a benchmark) Example (2) bike
riding with and without a helmet
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Direction of Risk

• Upside risk versus downside risk
• The magnitude may vary
• Examples
• bungee jumping
• Hiking the Panorama Trail in Yosemite National
  Park (see next page)

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Panorama Trail, Yosemite National Park
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Attitude towards risk

• Risk aversion
• concept in economics, finance, and psychology
  explaining the behavior of consumers and
  investors under uncertainty.
• Risk aversion is the reluctance of a person to
  accept a bargain with an uncertain payoff rather
  than another bargain with a more certain but
  possibly lower expected payoff.
• The inverse of a person's risk aversion is
  sometimes called their risk tolerance

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Example of risk

• A person is given the choice between a bet of
  either
• receiving 100 or nothing, both with a
  probability of 50
• a certain (100 probability) payment.
• risk averse if a person would rather accept a
  payoff of less than 50 (for example, 40) with
  probability 100 than the bet.
• risk neutral if a person is indifferent between
  the bet and a certain 50 payment
• risk-loving if it required that the payment be
  more than 50 (for example, 60) to induce him to
  take the certain option over the bet.

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Precautionary Principle

• When an activity raises threats of harm to human
  health or the environment, precautionary measures
  should be taken even if some cause-and-effect
  relationships are not fully established
  scientifically." from the January 1998 Wingspread
  Statement on the Precautionary Principle

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Precautionary principle

• People have a duty to take anticipatory action to
  prevent harm.
• "If you have a reasonable suspicion that
  something bad might be going to happen, you have
  an obligation to try to stop it."
• The burden of proof of harmlessness of a new
  technology, process, activity, or chemical lies
  with the proponents, not with the general public.

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Precautionary Principle

• Before using a new technology, process, or
  chemical, or starting a new activity, people have
  an obligation to examine "a full range of
  alternatives" including the alternative of doing
  nothing.
• Decisions applying the precautionary principle
  must be "open, informed, and democratic" and
  "must include affected parties."
• The precautionary principle is particularly
  relevant to the management of risk
• Responsible science and responsible policymaking
  operate on the precautionary principle

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Precautionary principle example

• Example Precautionary action is needed before
  climate change is significant and irreversible.
• We can not wait until we have refutable
  scientific evidence that everyone agrees with
  before we take action.

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Is this the Precautionary Principle?

• Kyoto is, in many ways, unrealistic. Many
  countries cannot meet their Kyoto targets. The
  targets themselves were arbitrary and not based
  upon science. For America, complying with those
  mandates would have a negative economic impact,
  with layoffs of workers and price increases for
  consumers. And when you evaluate all these
  flaws, most reasonable people will understand
  that its not sound public policy.
• I oppose the Kyoto Protocol because it exempts
  80 of the world, including major population
  centers such as China and India, from compliance,
  and would cause serious harm to the U.S. economy.