Describing Risk
* To measure risk we should know:
1) All the outcomes which are possible.
2) The probability that each outcome will occur.
* Interpreting Probability
- The probability of the given outcome to occur
* Interpreting Probability
- The probability which the given outcome will occur
- Objective Interpretation
- Based on frequency which is observed of past events
- Subjective
- Based on experience or perception with or without an observed frequency
- Different information or abilities to process the same information can influence subjective probability