Skip to main content
SpringerLink
Log in

Risk and Uncertainty—Crucial Issues in Finance and Innovation

  • Chapter
  • First Online:
Reengineering Capitalism

  • 911 Accesses

Abstract

Central in the capitalist system is the management of risk. It is important for technology development because lack of trust can be a significant barrier to the successful commercialization of innovations that are costly, technologically sophisticated, or potentially harmful to human health and the environment. It is also important for the financial industry as they try to anticipate future earnings and the like. To properly manage risks is not just important for investors to avoid losses, but it is important for society to continue accepting socialization of risks, which is crucial for the legitimacy of limited liability. Thus, there is a moral obligation to behave in trustworthy ways for those who want to invest and innovate in addition to managing risk.

Management is a practice rather than a science… and the ultimate test of management is performance.

Peter F. Drucker

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    According to Office of Technology Assessment (1995). Innovation and Commercialization of Emerging Technology, OTA-BP-ITC-165. Washington, DC, U.S. Congress, Office of Technology Assessment, U.S. Government Printing Office. p. 96.

  2. 2.

    See Murphy, G. (2008). “A Conversation with Patrick Moore: Why Former Greenpeace Leader Supports Nuclear Energy.” EIR Science & Technology(16 May): pp. 58–63.

  3. 3.

    According to Friedlob, G. T. and L. L. F. Schleifer (1999). “Fuzzy logic: application for audit risk and uncertainty.” Managerial Auditing Journal 14(3): pp. 127–135.

  4. 4.

    See the highly acclaimed book by Bernstein, P. L. (1996). Against the Gods: the Remarkable Story of Risk. New York, John Wiley & Sons. p. 383.

  5. 5.

    See Webster (1989). Webster’s Encyclopedic Unabridged Dictionary of the English Language. New York, Gramercy Books. p. 1854.

  6. 6.

    See for example Hines, W. W. and D. C. Montgomery (1990). Probability and Statistics in Engineering and Management Science. New York, John Wiley & Sons, Inc. p. 732.

  7. 7.

    This is a very common way of measuring risk found in countless literature, such as:

    • Standards Australia (1999). AS/NZS 4360:1999—Risk Management. Sydney, Standards Australia. p. 44.

    • Robbins, M. and D. Smith (2001). BS PD 6668:2000—Managing Risk for Corporate Governance. London, British Standards Institution. p. 33.

  8. 8.

    According to Honderich, T., Ed. (1995). The Oxford Companion to Philosophy. New York, Oxford University Press. p. 1009.

  9. 9.

    This insight is from Hubbard, D. W. (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. Hoboken, NJ, John Wiley & Sons, Inc. p. 281.

  10. 10.

    According to Honderich, T., Ed. (1995). The Oxford Companion to Philosophy. New York, Oxford University Press. p. 1009.

  11. 11.

    According to Jones, M. E. and G. Sutherland (1999). Implementing Turnbull: A Boardroom Briefing. City of London, The Center for Business Performance, The Institute of Chartered Accountants in England and Wales (ICAEW). p. 34.

  12. 12.

    See Drucker, P. F. (1986). Managing for Results: Economic Tasks and Risk-Taking Decisions. New York, HarperInformation. p. 256.

  13. 13.

    According to Peters, E. E. (1999). Complexity, Risk and Financial Markets. New York, John Wiley & Sons. p. 222.

  14. 14.

    See Webster (1989). Webster’s Encyclopedic Unabridged Dictionary of the English Language. New York, Gramercy Books. p. 1854.

  15. 15.

    See for example Gilford, W. E., H. R. Bobbitt and J. W. Slocum jr. (1979). “Message Characteristics and Perceptions of Uncertainty by Organizational Decision Makers.” Academy of Management Journal 22(3): pp. 458–481.

  16. 16.

    Quoted by McNeill, D. and P. Freiberger (1993). Fuzzy Logic. New York, Simon & Schuster. p. 320.

  17. 17.

    This is exemplified by Emblemsvåg, J. (2003). Life-Cycle Costing: Using Activity-Based Costing and Monte Carlo Methods to Manage Future Costs and Risks. Hoboken, NJ, John Wiley & Sons. p. 320.

  18. 18.

    See Arrow, K. J. (1992). I Know a Hawk from a Handsaw. Eminent Economists: Their Life and Philosophies. M. Szenberg. Cambridge, Cambridge University Press: pp. 42–50.

  19. 19.

    See for example Hubbard, D. W. (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. Hoboken, NJ, John Wiley & Sons, Inc. p. 281.

  20. 20.

    According to Vygotsky, L. S. (1988). Thought and Language. Cambridge MA, The MIT Press. p. 285.

  21. 21.

    See Taguchi, G., S. Chowdhury and Y. Wu (2005). Taguchi’s Quality Engineering Handbook. Hoboken, NJ, John Wiley & Sons. p. 1662.

  22. 22.

    See Klir, G. J. and B. Yuan (1995). Fuzzy Sets and Fuzzy Logic: Theory and Applications. New York, Prentice-Hall. p. 268.

  23. 23.

    See Klir, G. J. (1991). “A principal of uncertainty and information invariance.” International Journal of General Systems 17: pp. 258.

  24. 24.

    See Honderich, T., Ed. (1995). The Oxford Companion to Philosophy. New York, Oxford University Press. p. 1009.

  25. 25.

    See Kangari, R. and L. S. Riggs (1989). “Construction risk assessment by linguistics.” IEEE Transactions on Engineering Management 36(2): pp. 126–131.

  26. 26.

    According to Zadeh, L. A. (1965). “Fuzzy Sets.” Information Control 8: pp. 338–353.

  27. 27.

    See for example Roos, N. (1998). An objective definition of subjective probability. 13th European Conference on Artificial Intelligence, John Wiley & Sons.

  28. 28.

    See Kahneman, D., P. Slovic and A. Tversky, Eds. (1982). Judgment Under Uncertainty: Heuristics and Biases. New York, Cambridge University Press. p. 544.

  29. 29.

    This definition is from Honderich, T., Ed. (1995). The Oxford Companion to Philosophy. New York, Oxford University Press. p. 1009.

  30. 30.

    See Fenton-O'Creevy, M. and E. Soane (2001). The subjective perception of risk. Financial Times Mastering Risk—Volume 1: Concepts; Your Single-Source Guide to Becoming a Master of Risk. J. Pickford. London, Prentice Hall: pp. 25–30.

  31. 31.

    See Schein, E. H. (2004). Organizational Culture and Leadership. San Francisco, Jossey Bass. p. 452.

  32. 32.

    For an excellent discussion, see Hofstede, G., G. J. Hofstede and M. Minkov (2010). Culture and Organizations: Software of the Mind: Intercultural Cooperation and Its Importance for Survival. London, McGraw-Hill. p. 561.

  33. 33.

    See MacCrimmon, K. R. and D. A. Wehrung (1986). Taking Risks: The Management of Uncertainty. New York, The Free Press. p. 400.

  34. 34.

    See Starr, C. (1969). “Social Benefit versus Technological Risk.” Science 165(3899): pp. 1232–1238.

  35. 35.

    See Slovic, P., B. Fischhoff and S. Lictenstein (1979). Facts and Fears: Understanding Perceived Risk. Proceedings of the General Motors Symposium on Societal Risk Assessment. R. C. Schwing and W. A. Albers. Warren, MI, Plenum Press: pp. 181–216.

  36. 36.

    See Slovic, P. (1987). “Perception of Risk.” Science 236(4799): pp. 280–285.

  37. 37.

    According to Starr, C. (1969). “Social Benefit versus Technological Risk.” Science 165(3899): pp. 1232–1238.

  38. 38.

    See Bernstein, P. L. (1996). Against the Gods: the Remarkable Story of Risk. New York, John Wiley & Sons. p. 383.

  39. 39.

    See Dubois, D., J. Lang and H. Prade (1994). Possibilistic logic. Handbook of Logic in Artificial Intelligence and Logic Programming: Volume 3: Nonmonotonic Reasoning and Uncertain Reasoning D. M. Gabbay, H. C. J. and J. A. Robinson. Oxford, Oxford University Press: pp. 439–513.

  40. 40.

    See Emblemsvåg, J. and L. E. Kjølstad (2006). “Qualitative risk analysis—some problems and remedies.” Management Decision 44(3): pp. 395–408.

  41. 41.

    See Bernstein, P. L. (1996). Against the Gods: the Remarkable Story of Risk. New York, John Wiley & Sons. p. 383.

  42. 42.

    According to Tversky, A. and D. Kahneman (1974). “Judgment under Uncertainty: Heuristics and Biases.” Science 185(4157): pp. 1124–1131.

  43. 43.

    See Savage, L. J. (2003). The Foundations of Statistics. New York, Dover Publications Inc. p. 310.

  44. 44.

    According to Tversky, A. and D. Kahneman (1974). “Judgment under Uncertainty: Heuristics and Biases.” Science 185(4157): pp. 1124–1131.

  45. 45.

    According to Vygotsky, L. S. (1988). Thought and Language. Cambridge MA, The MIT Press. p. 285.

  46. 46.

    See for example Emblemsvåg, J. and L. E. Kjølstad (2006). “Qualitative risk analysis—some problems and remedies.” Management Decision 44(3): pp. 395–408.

  47. 47.

    See Hubbard, D. W. (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. Hoboken, NJ, John Wiley & Sons, Inc. p. 281.

  48. 48.

    Unfortunately, for subjective probabilities to be considered adequate, internal consistency is not enough. The judgment must be compatible with the entire web of beliefs held by the individual, see Tversky, A. and D. Kahneman (1974). “Judgment under Uncertainty: Heuristics and Biases.” Science 185(4157): pp. 1124–1131.

    However, since the scoring using AHP is based on beliefs, and AHP allows a mathematical consistency check, I believe using AHP is the best we can obtain.

  49. 49.

    See Emblemsvåg, J. (2010). “The augmented subjective risk management process.” Management Decision 48(2): pp. 248–259.

  50. 50.

    See Hubbard, D. W. (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. Hoboken, NJ, John Wiley & Sons, Inc. p. 281.

  51. 51.

    This compilation is from Meulbroek, L. (2001). Total strategies for company-wide risk control. Financial Times Mastering Risk—Volume 1: Concepts; Your Single-Source Guide to Becoming a Master of Risk. J. Pickford. London, Prentice Hall: pp. 67–73.

  52. 52.

    See Emblemsvåg, J. and L. E. Kjølstad (2006). “Qualitative risk analysis—some problems and remedies.” Management Decision 44(3): pp. 395–408.

  53. 53.

    As reported by Backlund, F. and J. Hannu (2002). “Can we make maintenance decisions on risk analysis results?” Journal of Quality in Maintenance Engineering 8(1): pp. 77–91.

  54. 54.

    According to Bernstein, P. L. (1996). Against the Gods: the Remarkable Story of Risk. New York, John Wiley & Sons. p. 383.

  55. 55.

    See Emblemsvåg, J. (2010). “The augmented subjective risk management process.” Management Decision 48(2): pp. 248–259.

  56. 56.

    See Earl, M. (2001). “Knowledge management strategies: toward a taxonomy.” Journal of Management Information Systems 18(1): pp. 215–233.

  57. 57.

    According to Li, M. and F. Gao (2003). “Why Nonaka highlights tacit knowledge: a critical review.” Journal of Knowledge Management 7(4): pp. 6–14.

  58. 58.

    See Cavusgil, S. T., R. J. Calantone and Y. Zhao (2003). “Tacit knowledge transfer and firm innovation capability.” Journal of Business & Industrial Marketing 18(1): pp. 6–21.

  59. 59.

    See Neef, D. (2005). “Managing corporate risk through better knowledge management.” The Learning Organization 12(2): pp. 112–124.

Author information

Authors and Affiliations

  1. Alesund, Norway

    Jan Emblemsvåg

Authors
  1. Jan Emblemsvåg
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jan Emblemsvåg .

Rights and permissions

Reprints and permissions

Copyright information

© 2016 Springer International Publishing Switzerland

About this chapter

Cite this chapter

Emblemsvåg, J. (2016). Risk and Uncertainty—Crucial Issues in Finance and Innovation. In: Reengineering Capitalism. Springer, Cham. https://doi.org/10.1007/978-3-319-19689-3_3

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-19689-3_3

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-19688-6

  • Online ISBN: 978-3-319-19689-3

  • eBook Packages: EnergyEnergy (R0)

Publish with us

Policies and ethics

Search

Navigation