401k403(b)457 Plan529 PanBankruptcyBudgetBusiness PlanCash FlowCentral BankCredit CardCredit UnionDay TradingDebit CardDebt ConsolidationDeposit AccountDividendEconomyEmployee BenefitsEmployee Stock OptionEntrepreneurFinancial AdvisorFinancial PlannerHard Money LenderHealth InsuranceHedgeIRAInsuranceInterestInvestmentLife InsuranceLoanMicrocreditMoneyMortgageMortgage LoanPawnbrokerPensionPortfolioRetirement PlanReturnsRiskSalarySocial SecuritySpeculationStock BrokerStock ExchangeStock MarketWageWarrant
Risk
Definitions of riskHistorical backgroundRisk vs. uncertaintyInsurance and health riskInsightIn businessRisk sensitive industriesIn public worksRegretFramingFear as intuitive risk assessmentRisk assessment and management
Definitions of riskHistorical backgroundRisk vs. uncertaintyInsurance and health riskInsightIn businessRisk sensitive industriesIn public worksRegretFramingFear as intuitive risk assessmentRisk assessment and management
Framing
Framing (Tversky, Amos, and Daniel Kahneman, 1981. "The Framing of Decisions and the Psychology of Choice.") is a fundamental problem with all forms of risk assessment. In particular, because of bounded rationality (our brains get overloaded, so we take mental shortcuts), the risk of extreme events is discounted because the probability is too low to evaluate intuitively. As an example, one of the leading causes of death is road accidents caused by drunk driving—partly because any given driver frames the problem by largely or totally ignoring the risk of a serious or fatal accident.For instance, an extremely disturbing event (an attack by hijacking, or moral hazards) may be ignored in analysis despite the fact it has occurred and has a nonzero 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 human tendencies to error and wishful thinking often affect even the most rigorous applications of the scientific method and are a major concern of the philosophy of science.
All ": acceptance of obviously wrong answers simply because it is socially painful to disagree, where there are conflicts of interest. One effective way to solve framing problems in risk assessment or measurement (although some argue that risk cannot be measured, only assessed) is to raise others' fears or personal ideals by way of completeness.