RMI2201 CH. 2 (VanBuskirk Online, Troy University)

who are generally considered to be the founders of probablity as a science, and why?

Blaise Pascal (mathematician) and Chevalier de Mere (gambler); De Mere asked Pascal two questions about gambling in 1654 and they discussed them time and time again, establishing the groundwork of probability theoru

The more resources available, the ______ impact risk has on decision making

less

what is the alternative definition of risk

The probability of a person suffering an adverse effect from some activity or exposure over a given period [time] of involvement

what is public policy

government policies that affect the whole population; generally defined as a system of laws, regulatory measures, courses of action, and funding priorities concerning a given topic promulgated by a gov. entity or its representatives

All of the following can reduce the effectiveness of risk management EXCEPT:

a

Lack of resources.

b

Lack of uniformity of impact among different groups, i.e. some groups are impacted while others are not.

c

Competing interests of various groups.

d

Using probability theory to predict outcomes.

d

Using probability theory to predict outcomes.

Why is it good to measure risk over time? what are some downsides?

good:

- helps those managing risk at a societal level focus resources on areas of greatest need

downsides:

- it doesn't address the amt of times a person/group is exposed to a risk

- doesn't address individual lifestyle bc this is the data for an avg american

- lifetime risks may overstate or understate the true risk at any point during your lifetime (i.e. the older you are, the more likely you are to develop breast cancer, whereas when you are younger the risk is lower)

T/F: dying has the same impact to society no matter what age you are

FALSE: dying younger has a more negative impact than dying older, bc when you're old, you've typically already contributed everything you are going to contribute, whereas when you are younger you have more potential/opportunities to do things

Using lifetime risk probabilities:

a

May overstate true risk at a point in time

b

Does not account for individual lifestyles

c

Can help identify trends involving specific categories

d

All are correct

e

None are correct

d

All are correct

What factors do legislators, regulators, and other policy makers weigh when considering what problems to address as a matter of public policy?

1. how much of the population may be affected- both directly and indirectly

2. what is the cost? what is the benefit?

3. who or what may be harmed

4. is there already a system in place to address unexpected outcomes, such as civil courts?

5. what may be the ramifications if nothing is done?

6. what are potential unintended consequences- direct, indirect, economic?

T/F: risk reduction techniques have a monetary or economic cost associated with them

TRUE - example: we could reduce the speed limit to 5 mph to make automobile accidents virtually 0, but there would be costs; it would take a long time to get to places, and to transport fresh fruits and veggies to other parts of the country or even world. BALANCE RISK AND REWARD

what is the illusion of control

coined by Ellen Langer in 1975; refers to the fact that individuals have a personal success probability that is inappropriately higher than objective probability and overstates a person's ability to eliminate risk. BASICALLY: we all believe that since we're behind the wheel of the car, we are in control and can solve our own problems/avoid unexpected outcomes. not the truth lol

Which statement regarding risk reduction is/are true:

I. Risk reduction may result in unintended consequences

II. Risk reduction can be costly, and costs can exceed potential benefits

III. Public policy decisions are always made for the benefit of society

Select an answer and submit.

a

I only

b

II only

c

III only

d

I and II

e

II and III

f

All are true

g

None are true

d

I and II

what is the availability heuristic

people tend to estimate probability based on ease of recall

what is the risk/reward tradeoff of innovation

there is risk to the innovators and to the end users; making informed choices will lower the potential risks associated with a new product or service

T/F: human nature leads to changing behaviors and habits because people feel safer, adn when they feel safer, they may take less risks

FALSE: when they feel safer, they take GREATER risks, which potentially eliminates any benefits the innovation provides

what is the biggest difficulty when estimating the risks associated with innovation?

the lack of past data

T/F: something that is truly innovative has no history

true

What are the 5 Rules of Thumb to Minimize Risk?

1. recognize that you need a model

2. acknowledge your model's limitations

3. expect the unexpected

4. understand use and user

5. check the infrastructure

T/F: it is always worth it to reduce risk

False; sometimes it is more costly

what is a model? give examples

a mathematical model is designed to mimic possible future outcomes and help determine possible gains or losses that may occur; ex: hurricane models that project the path of storms or fantasy football models that predict player point

What are the steps to creating and using a model?

1. recognize that the model has limitations

2. know complications will arise that were not predicted by the model

3. remember things do not occur in a vaccuum; pay attention to your environment

what is an incorrect model

one in which some underlying factor or combo of factors is simply errant/incorrect; the only thing thing to

what are black swans

event that by definition are rare and are difficult to predict

T/F: the disconnect between innovation and infrastructure is often a source of risk

true

All of the following statements regarding risk modeling are true EXCEPT:

a

The more sophisticated the model, the greater the reliability of the information output.

b

Incomplete models can be improved, incorrect models must be replaced.

c

The rapid pace of infrastructure change allows innovations to be introduced with little risk.

d

Models improve predictions, but not all events can be predicted.

c

The rapid pace of infrastructure change allows innovations to be introduced with little risk.