Knowledge theorists opine that risk management is actually a combination of management of uncertainty, risk, equivocality and error. Uncertainty arises due to lack of information. As information gathering progresses, uncertainty transforms into risk. In uncertainty, outcomes cannot be estimated even randomly. This is possible in the case of risk. As information about markets and knowledge about possible outcomes increases, risk management provides solutions for cutting risk. Equivocality arises due to conflicting interpretations and the resultant lack of judgement. This happens despite adequate knowledge of the situation. Institutions develop control systems to reduce errors, information systems to reduce uncertainty, incentive systems to manage agency problems in a risk-reward framework and cultural systems to deal with equivocality. Which of the following conclusions cannot be inferred from the passage?

Question

Multiple choice

Risk comes from unpredictable sources and managers resort to various approaches associated with risk management.
Risk arises from lack of information and inadequate discernment.
The risk managers are prone to error, due to the uncertainty of information and equivocality of judgment.
Risk managers endeavour to reduce uncertainty through disputative interpretations of not so uncertain information.

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Accepted Answer

Risk management is a graduated process of passing from total uncertainty to lucidity.

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