 Hey guys, it's MJ the student-actree and today I want to ask what is risk? It's something that is Fundamental to actuarial science, but it's something that I've realized we never get a clear definition on what exactly it is So in this video, I'm going to explore what is the definition for risk? so a good place to start is with Google and When you type in the definition of risk in Google, it says a situation involving exposure to danger or expose something to danger harm or loss and I Don't like this definition. It's too much. It's too as we would say colloquial You know as people using risk in the everyday language and it's not necessarily talking about risk in the actuarial profession So because I didn't like this definition I decided to go to a website which I thought would maybe give a better one and that was Investopedia Investopedia says That it defines risk as the chance that an investment's actual return will be different than expected Now I like the part where it says Different than expected and not just focusing on the loss But then the definition continues by saying the risk includes the possibility of Losing some or all of the original investment Different versions of risk are usually measured by calculating the standard Deviation of the historical returns of average or average returns of this particular investment blah blah blah But that definition kind of shoots itself in the foot because the standard deviation doesn't just look at the downside risk It will also look at the upside risk so They mentioned their definition that it's the possibility of losing something But they haven't included that it's also the possibility of gaining and that's what the standard deviation will measure It doesn't know if it's a bad risk or a good risk something that we're going to get to a little bit later however, my hope in the internet was not lost as I went to the very trustworthy Wikipedia and I really enjoyed their definition on risk They said risk is the potential of losing something of value. So I don't like the beginning part And then it talks about blah blah blah But yeah, right at the end it says risk can also be defined as the intentional interaction with uncertainty ooh Uncertainty is a potential unpredictable unmeasurable and uncontrollable outcome risk is now listen to this part a consequence of action Taken in spot of uncertainty now the words that jump up to me is uncertainty and Consequence so what I'm going to do is well I came up with my own definition, which I think just Takes all of these definitions into account and so I defined risk as risk is the result of the consequence of an uncertain event and What I'm going to do is I'm going to explain this just in a little bit More detail so risk is the result of the consequence of an uncertain event. I hope my English is right there, but anyway Let's say for example. We have a coin The coin represents uncertainty because we're going to flip it So we're going to flip our coin and it can either land on heads or it can land on tails We're not sure what's going to happen. Okay. Now my question to you is What is the risk involved with this? Okay of flipping the coin and it can either be heads or it can be tails Well, let's look the result is that it's either heads or tails The uncertainty is 50% so there is uncertainty We don't know if it's going to be heads and we don't know if it's going to be tails But here's the important part and that is there are no consequences if I take a coin and I flip it I don't care if it lands heads or if it lands tails that result has no consequence on my life and Therefore there is no risk Now Let's let's spice this up a bit Let's say I've got that same coin and My friend comes along and we do something known as gambling So I say to him I will pay you three bags of money if it lands on heads And you'll pay me three bags of money if it lands on tails So now we still have the result can either be heads or tails. There still is that uncertainty But now there is a financial consequence to the result of this coin toss If it lands on the one side, I'm going to be richer if it lands on the other side I'm going to be poorer and thus risk has been introduced There's the risk that I may gain and there is the risk that I may lose so risk can be both positive and negative and So therefore there is risk in this situation and notice how the consequence It doesn't necessarily have to be financial it can be a reputation risk, you know You could steal something and if you caught your reputation could be in ruin So it doesn't have to be financial And job that is basically how I define risk and the reason I've made this video is because I'm studying for subject ST 9 which is Enterprise risk management and it's all about risk and how risk relates to business and how risk is one of the most core building blocks to the financial and capital world So these are going to be some of the future videos. I'm going to be making with regards to this series I'm going to be going through an enterprise risk management textbook and just be making videos on the cool stuff that I learn So I hope you like this video And y'all subscribe if you want to see the rest of them And y'all that's all that I have to say for this video. Thanks for watching guys. Cheers