What is Risk?

Risk is commonly defined as exposure to the chance of a loss. There are several important elements to this definition. The first is the idea that the outcome is unknown, but the range of possible outcomes is known — either there is a loss, or there is not. The second is that some possible outcomes are more desirable than others — not experiencing a loss is better than experiencing a loss where a loss might be a decline in wealth, health, crop yields, etc. The third is that the unknown outcome is a matter of chance, which means individuals can assign probabilities to the range of possible outcomes.

Namibia / © Bernhard Richter

This definition frames risk as something that is uniformly undesirable.  Yet, many individuals, particularly farmers, voluntarily subject themselves to risk that could be avoided, which suggests that the possibility of a potential loss is not always perceived as undesirable, particularly when there is also the possibility for a large gain.  Therefore, an alternative definition of risk used for the HarvestChoice project is the exposure to the chance of varied outcomes.  This alternative definition is almost identical to the common definition.  The fundamental difference is that it focuses on the variability of potential outcomes, rather than only on the potential for loss.