Defining risk - what does it mean to you?

[Trader Pat]

I've never topped this explanation: -

https://www.youtube.com/watch?v=GiPe1OiKQuk

When I first saw that press conference I was sitting in a bar trying to figure out why the Secretary of Defense was talking about gnomes... I'd obviously had a few at that point!

[to75ne]

Here’s my stab:

Risk is the probability and associated cost of something not turning out to be what you expect (or want) it to be.

that is the best description (in a nutshell) i have heard. is it yours?

That's the same as saying the chances of losing !

yes, but it sounds better, eloquent.

Xitian i will be ripping you off

[xitian]

The estimate of how much you could lose is just as important as the chance of you losing. (And hence the reference to “cost” of losing).

[Derek27]

I've never topped this explanation: -

https://www.youtube.com/watch?v=GiPe1OiKQuk

I like the way the reporters started laughing as soon as he mentioned "unknown unknowns", as they realised that he doesn't know.

[LucyLoo]

I've never topped this explanation: -

https://www.youtube.com/watch?v=GiPe1OiKQuk

If the video was extrapolated to horse racing, would the following be along the right lines? Thanks

"The 2nd is drifting":- Known known
"The 3rd is stable":- Known unknown
"The bomber":- Unknown unknown

"The 3rd is stable (scalper)":- Known known
"The 3rd is stable (swinger)":- Known unknown

"The 2nd is drifting, I will lay":- Known known
"The 2nd is drifting, I will back":- Known unknown

Quickly get pretty complex, especially the last example. Because which trader is correct?

[ruthlessimon]

"The 3rd is stable (scalper)":- Known known
"The 3rd is stable (swinger)":- Known unknown

"The 2nd is drifting, I will lay":- Known known
"The 2nd is drifting, I will back":- Known unknown

Those last few examples are interesting. Both traders agree on the information, but both are taking completely different risks. Almost a paradox - & technically both can be profitable with the right timing

[Korattt]

"The 3rd is stable (scalper)":- Known known
"The 3rd is stable (swinger)":- Known unknown

"The 2nd is drifting, I will lay":- Known known
"The 2nd is drifting, I will back":- Known unknown

Those last few examples are interesting. Both traders agree on the information, but both are taking completely different risks. Almost a paradox - & technically both can be profitable with the right timing

depending on market conditions

[Kafkaesque]

Here’s my stab:

Risk is the probability and associated cost of something not turning out to be what you expect (or want) it to be.

Every decision you make in life has risk. You would generally expect a high reward to compensate you for taking a high risk. Doing well at trading or gambling requires you to be good (accurate) at estimating risk such that you can make choices where the reward more than justifies the risk in the long run.

Edit: For example, imagine you are bad at estimating risk. You will either miss opportunities where the risk was worth the reward because you miscalculated the risk to be higher than it was. Or alternatively you will pick bad choices where the risk was greater than the reward by miscalculating the risk as being lower than it was.

Obviously it can be more complicated than that if there are many factors and/or subjective factors involved. The correct decision for one person might not be the same for another. Plus the decision you make will depend on how well you handle higher levels of risk (potentially regardless of how high a reward).

For a stab, that's pretty darn good

I know a few game theory nutters who'll absolutely talk your ear off about this stuff!

You're correct in every decision having risk. Most people need to get in a car, on a bike, a train or whatever to go make money to survive (unless they're one of those god awful people sitting at home trading for a living ). The piece, I feel, you're missing in the above is that there's a huge difference between the everyday stuff of driving, crossing the street etc. and risks taken with purpose.

The latter are the most interesting. My stab would be that risk is putting yourself in a situation, which is at least partly beyond your own control, where you may lose something that you're currently in possession of - in order to become in possession of more of the same, or of something different. Could be betting or trading in monetary terms, but also risking your life with dangerous sports to gain adrenaline, or risking your marriage by sleeping with your wife's sister to gain, well....

Estimating risk, as you touch upon is really interesting, as having that ability along with the knowhow to then take good, calculated risks is what seperates the pack imho.

[arbitrage16]

Diminutive, oblique, arrogant, and unhelpful....Rumsfeld, of course, what a piece of work.

'Defining risk is about defining what the market has to look, feel and sound like to tell me my edge isn't working'

[gutuami]

Jordan Peterson On Money, Risk Taking, and Finance

https://www.youtube.com/watch?v=1folk_w-CWs

[arbitrage16]

Great shout, will watch that later, JBP is a great thinker