INTRODUCTION
Risk is a state in which losses are possible. You are surrounded by innumerable risks from birth to death. They are pervasive as the air we breathe. Air itself even involves risk because its pollutants can cause unpredictable illnesses that in turn can cause loss to both your ability to earn income by working and enjoy life in its fullest. Risk also exists when part of your family or business income can be wiped out by death or disability. Likewise, assets can be destroyed by earthquake, flood, fire, tornado, being held legally liable for damage to someone else and a host of other causes of loss.
UNDERSTANDING OF RISK
Risk may be considered from a number of different viewpoints that can be argued to form a continuum ranging from a very narrow view to a much broader understanding of the nature of risk. At the narrow or quantitative end of the scale is the view held mainly by engineers. This approach takes the stance that risk is represented by the quantitative measure of the probability of an untoward/unpleasant event occurring.

Economists tend to view risk differently. Again probability theory is used but it is applied to all possible outcomes arising out of a particular event. By multiplying the probability by the outcome an expected loss is produced. When all outcomes are multiplied by their respective probabilities a probability distribution is produced. Various means are used to measure the outcome of an event. The cost of the outcome in monetary terms may be used so that the expected loss will consist of the probability of all the outcomes times the costs that may arise. Utility is often used instead of cost to take into account factors other than money. Utility refers to the satisfaction obtained from an action or product, an example being the purchase of a good. Thus when applying utility theory to a problem economists calculate expected