Risk, Risk Perception, Risk Management – a Review of the Literature
Economist, Senior Auditor Counsellor, State Audit Office of Hungary
Published in: Public Finance Quarterly 2015/1 (p. 29-48.)
SUMMARY: Risks have become an integral part of our society. In this context, the aim of this paper is to provide a summary of the findings of risk research conducted in different fields of study and to trace the effect of these findings on risk management practices. The basic approaches to risk presented in this paper show that the notions of probability employed in studying processes in any area of life belong in the province of epistemology rather than ontology. Therefore, subjectivity cannot be completely excluded from risk management. This inherent subjectivity influences willingness to take risks as well as decision-making and risk evaluation. If we conceive of risks as mass phenomena, we have a number of objective (quantitative) methods at our disposal to estimate their probability and effect. However, the significance of subjective (qualitative) professional judgment increases as the volume of available data decreases. Regardless of the risk analysis method used, it is a basic principle that the costs of risk management should not be higher than the risk itself which in turn determines also the scope of the risk analysis to be carried out.
KEYWORDS: risk, uncertainty, decision-making
JOURNAL OF ECONOMIC LITERATURE (JEL) KÓD: D81, G32