Multiple choice

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 can't be inferred from the paragraph?

  1. Risk comes from unpredictable sources and managers resort to various approaches associated with risk management.

  2. Risk arises from lack of information and inadequate discernment.

  3. The risk managers are prone to error, due to the uncertainty of information and equivocality of judgment.

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

  5. Risk managers endeavour to reduce uncertainty through disputative interpretations of not so uncertain information.
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D Correct answer
Explanation

The passage is about management of risk and uncertainty. Nowhere does the passage imply that there is a situation of total uncertainty or that a situation of certainty or lucidity can be reached.

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