Taking Risks: The Management of Uncertainty - Softcover

Wehrung, Donald

Softcover

ISBN 10: 0029195632 ISBN 13: 9780029195635

Verlag: Free Press, 1988

Inhaltsangabe

This seminal work reveals how age, education, income, industry, firm size, and other factors affect a manager's willingness to take risks.

Über diesen Titel

Über die Autorin bzw. den Autor

Kenneth R. MacCrimmon is Earle Douglas McPhee Professor of Management, Faculty of Commerce and Business Administration, the University of British Columbia. The former J.L. Kellogg Distinguished Professor of Strategy and Decision at Northwestern University, he is internationally known for his work on decision making, risk taking, and strategic management.

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

Chapter 1

Essence of Risk

A life without adventure is likely to be unsatisfying, but a life in which adventure is allowed to take whatever form it will, is likely to be short.

Bertrand Russell

INTRODUCTION

Some risks such as natural disasters are dramatically obvious, and they affect many people. Hurricanes, volcanoes, and earthquakes can destroy entire communities in minutes. Malaria, smallpox, and sleeping sickness can devastate populations. Other risks are more personal. Crossing busy streets, working in a polluted environment, borrowing money, or failing to contain our anger are everyday risks that most of us face.

Consider getting food from the supermarket. We jump in the car and run a risk of being hit by a careless or drunk driver, even if we are cautious ourselves. Once inside the store we are faced with goods that may have been tampered with or tomorrow may be declared carcinogenic or environmentally harmful. On a more minor level, we may discover that the meat we bought was on sale at a competing supermarket.

If everyday choices present us with a shower of risks, our major choices are immersed in a virtual downpour. Think of what can go wrong in getting married, changing jobs, or taking a trip to a foreign country. In many of these situations, our choices do not just affect us, they affect many other people. Business and government decisions can influence the risks faced by thousands or millions of others.

Risk is a pervasive part of all actions. While eventual death may be certain, every day we engage in activities -- even just crossing the road to mail a letter -- that carry a risk of death. Although death is the ultimate risk, the economic and social risks that we face can be more oppressive. Seemingly secure jobs may disappear in economic hard times. Seemingly stable marriages may shatter for many possible reasons.

Life requires choices; choices require risks. While you can choose to minimize the risks you face, you cannot avoid risks completely. Along with death and taxes, risk is one of the certainties of life.

Proust-like, we may decide to isolate ourselves in the safety of our homes to avoid risks. However, we still may fall down the stairs, have a plane crash into the roof, be electrocuted in the bath, be assaulted by a burglar, be blown away by a tornado, or be downwind of an unsafe nuclear power plant. We may move to an isolated mountain region to escape from the risks of a city's polluting factories, traffic congestion, and racial tension only to expose ourselves to the risk of inadequate emergency medical services in the event of a heart attack. That many risks are hidden and not foreseen may mean greater peace of mind, but it does not reduce our exposure to their possible negative effects.

Primitive man had little control over his environment. The daily activities of acquiring food and shelter were fraught with risk. While modern man has gained some control over his environment and may experience fewer risks in acquiring the basic necessities, a more complex environment has brought new risks. In this century, technology and collective action fill our lives with man-made hazards such as nuclear war or acid rain. Gaining control over some risks has led to different types of risks that may even be more dangerous than the ones that have been mitigated. In general, avoiding one kind of risk will introduce some other risk. By not building nuclear powered energy plants, we run risks of impairing our economic structure by running short of fuel, increasing coal-related disease, and so forth.

Some actions appear to be free of risk. We invest our life savings in a "risk-free" savings account insured by the federal government instead of buying mutual funds or we marry our childhood sweetheart whom we have known for twenty years instead of marrying the seductive stranger. Although these actions seem to have predictable outcomes, they have risks of their own. Several years after putting the money into the savings account, it provides little security because of rampant inflation. Investing in mutual funds would have provided better security against changes in the price level. After marrying the childhood sweetheart and building a family, the marriage crumbles because the partners no longer find each other stimulating.

Thus even apparently riskless actions have risks associated with them due to unforeseen events or changes in perspective. Nonetheless it is often a useful fiction to think of some particular action as riskless so that other risky actions can be judged against it.

We sometimes think that by not taking an action we can avoid risks. You are approached by the chief executive of a multinational firm who wants you to leave your current position to assume the presidency of a small subsidiary. You delay responding so that you can think about the offer and its implications for yourself and your family. A week later another executive is made president of the subsidiary which grows into a multi-million dollar enterprise. By not accepting the risks of changing jobs, you missed an opportunity.

Not only can risks not be totally avoided, but most individuals seek risks in at least some aspects of their lives. Uncertainty about outcomes of virtually all important activities provides the excitement that stimulates as well as creating the anxiety that worries. People engage in hazardous recreational activities such as hang gliding and rock climbing, they play the stock market, and they gamble partly because of the stimulation that accompanies the risk. Success itself increases risks as we discover whether we can handle the new opportunities that become available.

We must face risks in all aspects of our lives and in the many roles we play. The risks we confront as a business executive or community leader are not the same risks we deal with as spouse or parent. We face personal risks that are financial, physiological, medical, social, and so forth. Risks also affect our careers and the organizations that employ us. Most human endeavors bring major risks. To set high goals of success is to run high risks of failure.

We expose ourselves to personal financial risks in several ways. We can live beyond our means when we spend more than our income and wealth can support. We can hold too many of our assets in investments that have a chance of major losses. We can hold too great a share of these assets as highly levered investments that are subject to the control of creditors. In each case loss of credit, loss of an asset, or personal bankruptcy are possible outcomes. During hard economic times unemployment rises and savings dwindle. Individuals with prudent financial investment and expenditure strategies do not suffer the same wide swings in economic well-being as those who sought greater gains with their associated financial risks.

Risks to one's physical health can take many forms -- accidents, disease, violence, heredity, diet, exercise (or its absence), personal habits, and so forth. Some physical risks have only minor consequences such as temporary mild discomfort or inconvenience whereas others have more major consequences such as permanent physical disability, severe suffering, or even death.

If you are an average American male under age 55, the number of days you lose from your life expectancy has been estimated to be more than ten times as high from motor vehicle accidents as from fires (195 days to 14 days). While indulging in regular coffee drinking will only shorten your life by an expected six days, being 30% overweight will cut your life expectancy by more than three and a half years! Even worse than being overweight is smoking more than 20 cigarettes a day; the risks involved (primarily lung cancer) can be expected to shorten your life by almost seven years. The...

Details zur Ausgabe

• Verlag: Free Press
• Erscheinungsdatum: 1988
• Sprache: Englisch
• ISBN 10: 0029195632
• ISBN 13: 9780029195635
• Einband: Taschenbuch
• Anzahl der Seiten: 400
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: preigu; mail@preigu.de; ; Lengericher Landstr. 19; Osnabrück; 49078; Deutschland