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What is a key distinguishing factor between risk and uncertainty?
What is a key distinguishing factor between risk and uncertainty?
Which of the following is an example of loss exposure?
Which of the following is an example of loss exposure?
Objective risk is defined as which of the following?
Objective risk is defined as which of the following?
In the context of risk management, how can the probability of loss be described?
In the context of risk management, how can the probability of loss be described?
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Which scenario illustrates the concept of uncertainty?
Which scenario illustrates the concept of uncertainty?
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What does the law of large numbers imply about the actual loss experience as the number of exposure units increases?
What does the law of large numbers imply about the actual loss experience as the number of exposure units increases?
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Which statement best defines subjective risk?
Which statement best defines subjective risk?
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What is a key characteristic of objective probability?
What is a key characteristic of objective probability?
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Which of the following factors is NOT mentioned as influencing subjective probability?
Which of the following factors is NOT mentioned as influencing subjective probability?
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In the example of the lottery ticket, what does the driver believe that impacts their subjective probability of winning?
In the example of the lottery ticket, what does the driver believe that impacts their subjective probability of winning?
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High subjective risk generally leads to which type of behavior?
High subjective risk generally leads to which type of behavior?
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Which reasoning method evaluates outcomes based on experiences from finite observations?
Which reasoning method evaluates outcomes based on experiences from finite observations?
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Which technique involves eliminating the risk entirely?
Which technique involves eliminating the risk entirely?
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What does loss reduction aim to do?
What does loss reduction aim to do?
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Which risk management strategy involves saving money to cover potential losses?
Which risk management strategy involves saving money to cover potential losses?
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Which technique is NOT categorized under risk control?
Which technique is NOT categorized under risk control?
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What does the term 'noninsurance transfer' refer to in risk management?
What does the term 'noninsurance transfer' refer to in risk management?
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What is the focus of risk financing techniques?
What is the focus of risk financing techniques?
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Which risk control method involves using multiple strategies to mitigate risks?
Which risk control method involves using multiple strategies to mitigate risks?
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What is a key benefit of using risk retention?
What is a key benefit of using risk retention?
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Which of the following is a method of loss prevention?
Which of the following is a method of loss prevention?
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What is the definition of chance of loss?
What is the definition of chance of loss?
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Which statement correctly distinguishes chance of loss from objective risk?
Which statement correctly distinguishes chance of loss from objective risk?
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In the example comparing Los Angeles and Philadelphia, which factor contributed to the higher objective risk in Philadelphia?
In the example comparing Los Angeles and Philadelphia, which factor contributed to the higher objective risk in Philadelphia?
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What does the term 'peril' refer to in the context of risk management?
What does the term 'peril' refer to in the context of risk management?
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Which of the following is an example of a common peril?
Which of the following is an example of a common peril?
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What defines a physical hazard in risk management?
What defines a physical hazard in risk management?
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Which of the following best describes moral hazard?
Which of the following best describes moral hazard?
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Why might the chance of loss be identical for two groups but have different objective risks?
Why might the chance of loss be identical for two groups but have different objective risks?
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What happens to objective risk when the variation of actual loss increases?
What happens to objective risk when the variation of actual loss increases?
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Study Notes
Risk Management and Insurance - Chapter 2
- Risk Definition: Risk is defined as uncertainty concerning the occurrence of a loss.
- Historical Definition of Risk: The probability of a possible outcome is known or can be estimated. Uncertainty exists in situations where these probabilities cannot be estimated.
- Risk vs Uncertainty: Term risk is used when probabilities are known or estimated with accuracy, uncertainty when they aren't.
- Loss Exposure: A loss exposure is any circumstance in which a loss is possible, whether it occurs or not. Examples include damaged manufacturing plants, lawsuits, theft, and workplace injuries.
- Objective Risk: Defined as the relative variation of actual loss from expected loss. The more exposure units, the closer the actual loss approaches the expected loss. An example with insurers and house fires is provided.
- Subjective Risk (Perceived Risk): Defined as uncertainty based on a person's mental condition or state of mind. Subjective risk is closely related to an individual's state of mind. The example provided mentions drunk driving and perceived risk.
- Chance of Loss: Probability of an event occurring; objective and subjective aspects like risk; deductive and inductive reasoning. Examples demonstrate how calculation, or judgment, of the chance of loss is demonstrated.
- Objective Probability: The long-run relative frequency of an event; based on infinite observations and unchanging factors. This includes examples of coin tosses and probability.
- Subjective Probability: A person's estimated chance of a loss based on their own personal judgment. Influenced by a person's age, gender, education, intelligence and experience.
- Peril: The cause of a loss; examples include house fires, auto collisions.
- Hazard: A condition that increases the chance or severity of a peril; examples include icy roads, faulty wiring, defective locks.
- Physical Hazard: A physical condition that increases the frequency or severity of a loss. Examples: icy roads, defective wiring, defective locks.
- Moral Hazard: Dishonesty or character defects that increase the frequency or severity of a loss. Examples: faking an accident or inflating an insurance claim.
- Attitudinal Hazard: Carelessness or indifference to a loss, which increases the frequency or severity of a loss; examples provided include leaving car keys in an unlocked car or ignoring safety procedures.
- Legal Hazard: Refers to legal system or regulatory features that increase risks or loss frequency. Includes adverse judgments, extensive lawsuits, and insurance-related regulations.
- Types of Risks: Pure risk (only loss or no loss) example - death, accidents, speculative risk (potential profit or loss) examples - investing in real assets. Also Diversifiable risk; Non-diversifiable risk; Enterprise Risk; Systemic Risk.
- Burden of Risk in Society: Includes emergency funds, loss of goods or services, and worry or fear in society.
- Techniques for Managing Risk: Risk control; Avoidance, Loss Prevention, Loss Reduction, Duplication, Separation, Diversification. Risk Financing; Self-insurance, Retention, Insurance, Non-insurance transfer, Incorporation of business firms.
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Description
This quiz covers Chapter 2 of Risk Management and Insurance, focusing on the definitions and differences between risk and uncertainty. It explores concepts such as loss exposure, objective risk, and subjective risk, providing a comprehensive understanding of the foundational elements in risk management.
