Glossary of Terms
Oxford Risk is at the forefront of scientific research into the rapidly developing field of risk psychology. To help us communicate newfound knowledge we are creating a language of risk that in many cases has never before been fashioned. We have therefore compiled a glossary to help explain the meaning of these terms.
Balanced confidence
Having a level of confidence that a particular outcome will occur that is in accordance to the actual probability that outcome will occur e.g. being fifty percent confident the next flip of a coin will show a ‘head’.Balanced judgment
Correctly assessing the right course of action given a range of riskier and safer alternatives with different rewards.Behavioural ecology
The study of the ecological and evolutionary basis for animal behaviour, and the behaviour that enables an animal to adapt to its environment.
Behavioural economics
A field of study which applies scientific research on human cognition and emotional biases to economic decision-making. Research shows that people often hold on to a false set of beliefs that causes them to make irrational economic decisions.
Behavioural expectations
Degree to which a person believes they will take greater or lesser risks in the future than in the past.
Calculated risks
When faced with a risky course of action, the degree to which an individual or organization has been able to assess the rewards and probabilities of taking the risk versus taking safer courses of action. By this token, the calculated risk will be a risky course of action, but an appropriate decision nonetheless.Conservative bias
A tendency to take safer options even though riskier options would have resulted in better overall returns.Consistency
A measure of how often someone takes the same level of risk under the same or similar circumstances. Some people are predictable in their decisions when faced with a certain amount of risk; others may vary wildly in their propensity to take a chance or play it safe, making them wholly inconsistent.
Decision risk
Risks that are associated with the human decision-making process. The risk lies in the way in which decisions are made because humans do not always act rationally.
High risk appetite
A person is said to have high risk appetite if they generally show a strong preference for risky courses of action rather than ‘safer’ alternatives.
Judgment bias
A measure of one’s ability to take risks when appropriate. It is indicative of a person’s ability to maximise returns by choosing the right moment to either ‘take a chance’ or ‘play safe’.
Low risk appetite
A person is said to have a low risk appetite if they prefer predictable 'safer' courses of action to riskier alternatives, even at the expense of losing opportunities which may yield higher returns.
Neutral risk appetite
A person whose preferences are driven by the average yield of each alternative regardless of the risks involved.
Risk
Whilst some actions have only one possible consequence, others may have a range of consequences with different likelihoods. In these cases, the correct judgment requires the evaluation of all the range of possible consequences, and not simply the average or most likely ones. In making a choice between alternative courses of action, one must weigh the possible consequences alongside the probabilities of each ensuing outcome. The ability to respond to all possible outcomes is a crucial component of success in all walks of life, including business.Risk culture
The social and organisational determinants of individual risky decisions. Some organisations foster high risk cultures e.g. financial trading firms. Others will favour a more conservative culture e.g. regulators.Risk domains
Degree of risk taking is not always consistent and often depends on the situation (e.g. financial, health, social, etc.).
Risk profile
An analysis representing the extent to which a person exhibits various characteristics in relation to perception, attitude, decision-making and behaviour towards risk.Risk psychology
The branch of psychology studying perceptions, attitudes, decisions and behaviours towards risk and how humans and animals take risks.Risk versus reward
Degree to which a person feels they are prepared to take higher risks for higher gains.