Risk is the potential future harm that may arise from some present action. It is often combined or confused with the probability of an event which is seen as undesirable. Usually the probability and some assessment of expected harms must be combined into a believable scenario combining risk, regret and reward probabilities into expected value. However, there are many informal methods which are used to assess (or to "measure" although it is not usually possible to directly measure) risk.
risk is not threat
In scenario analysis it is distinct from threat which refers to a very low probability but high impact event - which cannot typically be included in a risk assessment and for which no effective preventative measure is available. The difference is most clearly illustrated by The Precautionary Principle which seeks to reduce threat by requiring it to be reduced to a set of well-defined risks before an action, project, innovation or experiment is allowed to proceed.
A more specific example is the preparedness of the United States of America prior to the devastating attack on September 11th, 2001. Although the Central Intelligence Agency had often warned of a "clear and present danger" of using planes as weapons, this was considered a threat not a risk. Accordingly, no comprehensive scenarios of probabilities and counter-measures were ever prepared for the type of attack that occurred. In general, a threat cannot be characterized as a risk without at least one specific incident wherein the threat can be said to have "realized". From that point, it is simple enough to characterize a probability, e.g. "in the entire history of air travel, X flights have led to 1 incident of..."
professions and government manage risk
Means of measuring and assessing risk vary widely across different professions - indeed means of doing so tends to define different professions, e.g. a doctor manages medical risk, a civil engineer manages risk of structural failure, etc.. A professional code of ethics is usually focused on risk assessment and alleviation (by the professional on behalf of client, public, society or life in general).
Some theorists of political science, notably Carol Moore and Jane Jacobs, emphasize that smaller political units and careful separation of regulator from trader roles can improve professional ethics and subordinate them to uniform risk limits that would apply to a particular locale, e.g. an entire urban area. The political ideal of bioregional democracy arose in part in response to these ideals, and problems of professional jargons and associations alienating power from real people living in real places.
"A profession by definition is in a conflict of interest with respect to the risk passed on to its clients." - Steven Rapaport.
risk as regret?
Risk has no one definition, but some theorists, notably Ron Dembo, have defined quite general methods to assess risk as expected after-the-fact level of regret. Such methods have been uniquely successful in limiting interest rate risk in financial markets - considered to be a proving ground for general methods of risk assessment. However, these methods are also hard to understand - they carry collateral risks that disclosure, valuation and transparency might be more difficult as a result of sophisticated math used in assessment of the financial derivatives.
In particular, it is often difficult to tell if such financial instruments are "hedging" (decreasing measurable risk by giving up certain windfall gains) or "gambling" (increasing measurable risk and exposing oneself to catastrophic loss in pursuit of very high windfalls that increase expected value). As regret measures rarely if ever reflect actual human risk aversion, it is quite difficult to determine if the outcomes of many such transactions over the medium term will be satisfactory.
In financial markets there are also credit risk, information timing and source risk, probability model risk, and legal risk if there are regulatory or civil actions taken as a result of some "investor's regret".
tough choices
This illustrates a more general problem in defining and assessing risk - the ways that different types of risk combine; Comparing the relative risks from different sources can present difficulties in decision making. For example, when treating a disease a doctor might have the choice of either using a drug that had a high probablility of causing minor side effects, or carrying out an operation with a low probability of causing very severe damage.
According to the regret theory, the only way to resolve such dilemmas might be to find out more about the patient's life and ambitions for their own future. If, for instance, the patient's greatest ambitions and life plans centered on raising children, one might prefer the drug even if it limited their mobility or physical capacity somewhat. However, if the patient has already risked their own life several times in extreme sporting events, the decision to do so one more time and recover full capacities may be far preferable. This highlights a major problem in professional ethics: knowing when the cognitive bias of the professional versus the client (or "patient") must dominate, and what choices each is best able to make.
framing
Framing is a fundamental problem with all forms of risk assessment - these body, threat, price of life, professional ethics and regret issues show that the risk adjustor or assessor is often in a serious conflict of interest - and cannot always be trusted to avoid all moral hazards or their own biases in assessment. This represents a risk in itself, which grows as the adjustor is more and more alienated from the receiver's body.
For instance, an extremely disturbing event that all participants wish not to happen again may be ignored in analysis despite the fact it has occurred and has a finite probability. Or, an event that everyone agrees is inevitable may be ruled out of analysis due to greed or an unwillingness to admit that it is believed to be inevitable. These factors often affect even the most rigorous applications of the scientific method and are a major concern of the philosophy of science. But all decision-making under uncertainty must consider cognitive bias, cultural bias, and notational bias: No group of people assessing risk is immune to "groupthink": acceptance of obviously-wrong answers simply because it is socially painful to disagree.
One effective way to solve framing problems in risk assessment or measurement (although some argue that risk cannot be measured, only assessed) is to ensure that scenarios, as a strict rule, must include unpopular and perhaps unbelievable (to the group) high-impact low-probability "threat" and/or "vision" events. This permits participants in risk assessment to raise others' fears or personal ideals by way of completeness, without others concluding that they have done so for any reason other than satisfying this formal requirement. For example, a CIA agent who strongly believed in the probability of attack by hijacking would have likely been able to insert this threat (as a formal risk with a nominal low probability) into assessment and thus budgeting, despite working for the Bush Administration which preferred to focus on missiles in North Korea. Even a small investment in diligence on this matter might have disrupted or prevented the attack - or at least "hedged" against the risk that the Administration might be mistaken.
in insurance
Although military decision making tends to dominate risk theory, its most sophisticated daily practice is most often seen in the insurance industry which has well-defined roles of actuary, underwriter, agent, auditor and adjustor - each of whom is an assessor in somewhat different circumstances or stages of the insuring, reinsuring, adjustment, recovery and claims payment processes.
military leads insurance leads finance leads government
In very broad terms, military and insurance decision making is quite a bit more formal and sophisticated than equivalent processes in financial markets - the regret theory has done much to equalize this by incorporating many common military and insurance practices, and putting formal trappings on them.
Generally, the military, insurance, financial, and other professional fields must work through methods before they become prevalent in regulations and in government generally. Different means of risk assessment with different ways of determining public concerns is a major concern of political parties in democracies, who compete to impose these views on foreign policy, the judicial system, law enforcement, and by writing laws themselves.
As a demonstration of the long timelines involved, scenario analysis had matured during Cold War confrontations between major powers, notably the USA and USSR, but was not widespread in insurance circles until the 1970s when major oil tanker disasters forced a more comprehensive foresight, in finance until the 1980s when financial derivatives proliferated, and in professions in general in the 1990s when personal computers proliferated. Governments are apparently only now learning to use sophisticated risk methods, most obviously to set standards for environmental regulation, e.g. "pathway analysis" as practiced in the US EPA.
civilization as risk reduction?
"Civilization advances by extending the number of important operations which we can perform without thinking about them." - Alfred North Whitehead.
If Whitehead is right, then the perfect civilization is the perfect risk reduction algorithm - capable of warning us long in advance of forseeable problems, and assuring us that surprises were unforseeable in principle.
Unfortunately, this vision of a risk-reducing symbiote or prosthetic for human judgement remains elusive, fragmented, and unlikely to be realized.
fear as intuitive risk assessment?
For the time being, we humans will have to rely on our own terror and hesitation to keep us out of the most profoundly unknown circumstances. In "The Gift of Fear", Gavin de Becker argues that "True fear is a gift." (from book jacket) "It is a survival signal that sounds only in the presence of danger. Yet unwarranted fear has assumed a power over us that it holds over no other creature on Earth. It need not be this way."
Risk could be said to be the way we collectively measure and share this "true fear" - a fusion of rational doubt, irrational fear, and a set of biases that are actually responding to conditionings from our own unconcious memories of our lives, loyalty groups, and local environment - to the degree we can anticipate, measure or share these at all. The field of behavioral finance focuses on human risk aversion, asymmetric regret, and other ways that human financial behavior varies from what analysts call "rational". A recognition of, and respect for, the irrational influences on our decisions, may go far in itself to reduce disasters due to naive risk assessments that pretend to rationality but in fact merely fuse many shared biases together:
"This above all, to refuse to be a victim." - Margaret Atwood
See also Safety engineering
Risk is the name of a popular board game.