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1.6 Review and Practice
- What are underlying objectives for the definition of risk?
- How does risk fit on the spectrum of certainty and uncertainty?
- Provide the formal definition of risk.
- What are three major categories of risk attitudes?
- Explain the categories and risk and provide examples for each category.
- What are exposures? Give examples of exposures.
- What are perils? Give examples of perils.
- What are hazards? Give examples of hazards.
- In a particular situation, it may be difficult to distinguish between moral hazard and morale hazard. Why? Define both terms.
- Some people with complete health insurance coverage visit doctors more often than required. Is this tendency a moral hazard, a morale hazard, or simple common sense? Explain.
- Give examples of perils, exposures, and hazards for a university or college. Define each term.
- Give examples of exposure for speculative risks in a company such as Google.
- Inflation causes both pure and speculative risks in our society. Can you give some examples of each?
- Define holistic risk and enterprise risk and give examples of each.
- Describe the new risks facing society today. Give examples of risks in electronic commerce.
- Read the box Note 1.32 "The Risks of E-exposures" in this chapter. Can you help the risk managers identify all the risk exposures associated with e-commerce and the Internet?
- Read the box Note 1.48 "Is Airport Security Worth It to You?" in this chapter and respond to the discussion questions at the end. What additional risk exposures do you see that the article did not cover?
One medical practice that has been widely discussed in recent years involves defensive medicine, in which a doctor orders more medical tests and X-rays than she or he might have in the past—not because of the complexity of the case, but because the doctor fears being sued by the patient for medical malpractice. The extra tests may establish that the doctor did everything reasonable and prudent to diagnose and treat the patient.
- What does this tell you about the burden of risk?
- What impact does this burden place on you and your family in your everyday life?
- Is the doctor wrong to do this, or is it a necessary precaution?
- Is there some way to change this situation?
Thompson’s department store has a fleet of delivery trucks. The store also has a restaurant, a soda fountain, a babysitting service for parents shopping there, and an in-home appliance service program.
- Name three perils associated with each of these operations.
- For the pure risk situations you noted in part 1 of this exercise, name three hazards that could be controlled by the employees of the department store.
- If you were manager of the store, would you want all these operations? Which—if any—would you eliminate? Explain.
Omer Laskwood, the major income earner for a family of four, was overheard saying to his friend Vince, “I don’t carry any life insurance because I’m young, and I know from statistics few people die at my age.”
- What are your feelings about this statement?
- How does Omer perceive risk relative to his situation?
- What characteristic in this situation is more important than the likelihood of Mr. Laskwood dying?
- Are there other risks Omer should consider?
The council members of Flatburg are very proud of the proposed new airport they are discussing at a council meeting. When it is completed, Flatburg will finally have regular commercial air service. Some type of fire protection is needed at the new airport, but a group of citizens is protesting that Flatburg cannot afford to purchase another fire engine. The airport could share the downtown fire station, or the firehouse could be moved to the airport five miles away. Someone suggested a compromise—move the facilities halfway. As the council members left their meeting that evening, they had questions regarding this problem.
- What questions would you raise?
- How would you handle this problem using the information discussed in this chapter?