Originally appeared in the June 2009 Edition of Journal of Risk (Defunct).

Photo by Tamara Gak on Unsplash

Risk management is relatively simple in its essence: what is the probability of an event occurring, and, if it happens how badly will it hurt? However, if we consider how we estimate probabilities and losses, the answers to these seemingly simple questions become complicated very quickly. To estimate the size of losses, risk managers have increasingly turned to…