Challenges in Applying Risk Management Concepts in Practice: A Perspective

Abstract

The existing concepts of risk management face challenges when applied in practice. The perception of risk depends on the observer's cognitive biases and worldview, which nuance risk-related decisions. How an observer decides also depends on the metric used to quantify risk. While there is extensive literature on how people perceive risk, and on how to price risk in relation to the market, there is little on how to price risk according to how risks interact within the firm. The article concludes with a suggestion (and includes relevant citations) for a way forward.