The economy is always characterized by uncertainty, manifested to varying degrees. This is due to those factors of the entire system of the economy that business entities cannot provide with sufficient probability to adapt to them.
Man's ability to adapt to uncertainty is called risk appetite. And the risk itself is a market situation provoked by uncertainty, because of which it is impossible to predict and predict anything (events, ways of behavior of business entities) accurately, with a high degree of probability.
The economic life of society has a very wide range of risks. To simplify, they are grouped depending on the conditions of occurrence.
1. Production risks depend on technological features and environmental conditions. They are also determined by those factors that affect the level of costs of the company.
2. Commercial risks arise in the process of selling services and goods. They are associated with the volume of purchases, with changes in prices, with the costs after the robbery or damage to the goods, etc.
3. Financial risks arise in the sphere of relations of firms with financial institutions (for example, with banks).
4. Interest rate risks are associated with possible costs due to a change in the rate of assets.
5. Credit risks are associated with the return of the loan late or in general with non-repayment.
The main methods for assessing risks have significant differences. This is due to the purpose for which they are used. So, statistical methods of risk assessment are most often used for mass events. They are based on the theory of large numbers. These risk assessment methods are based on information taken over a long period of time about events that could adversely affect the fate of business entities. If similar events took place before, then it is calculated with what frequency they occurred. Also, statistical methods for assessing risks are based on calculations of the likelihood that certain events will occur that may have negative consequences.
Qualitative methods of risk assessment are used in cases that are much less common and cannot be statistically determined. They are carried out on the basis of knowledge and experience of experts. Therefore, these risk assessment methods are also called expert assessment methods.
The level of risk depends on the value (probability of occurrence of undesirable events) that is expected from it, and on options for a possible outcome. For example, to calculate the likelihood that 2% of debtors will not repay the loan, they use information for twenty years. But over a short period of time, the number of those who did not return it ranges from 0% to 20%. The higher this variability of the fluctuations of the possible result, the higher the degree of risk, and vice versa.
Differences in the way people behave in a market situation depend on their different risk appetite. Experience shows that for the most part, people are still not risk averse. As a rule, entrepreneurs make up 5-7 percent of the total population. And this amount is enough to provide society with the necessary services and goods. This suggests that the ability to entrepreneurship is the same limited resource of the economy as the rest. Among the entrepreneurs themselves, one can also find inclined and risk-averse. This is explained not only by the mental state, but also by the economic law of downward border utility.
Those people who are not at all prone to risk will look for ways to avoid it, or at least limit it. They will agree to take risks only if the average level of profit is attractive to such an extent that it can cover the costs of risk.