Cambridge Business Association
Strategic Risk Taking
Book

Strategic Risk Taking

A Framework for Risk Management

Aswath Damodaran
Wharton School Publishing, 2007
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Editorial Rating

8

Qualities

  • Applicable

Recommendation

Many businesses could do a better job of exploiting risks. Unfortunately, not every business manager knows how. In his perceptive book, Aswath Damodaran details the principles and tools that most good risk managers use. Some of his work resembles a textbook. Appendixes with mathematical proofs of risk assessment models follow several chapters. But the book is mostly a readable blend of qualitative and quantitative insight. The author uses math more to illustrate concepts than to reduce them to equations. For students of risk management, this is great supplementary reading. getAbstract also believes this book would be an especially useful reference for specialists in corporate finance and investment management.

Summary

What Is Risk?

Risk is definable in many different ways. Some people define it in terms of the possibility of bad events. Others try to see it in terms of the probability of good and bad outcomes, an approach that is more useful in decision making. Because few opportunities are a guaranteed success, you often must accept the possibility of bad outcomes in your pursuit of gain.

Most people avoid some risks and seek others. Some individuals avoid heights, even if the chance of an accidental fall is very low, but embrace high-risk betting at casinos. Researchers have studied humans’ mixed response to risk for centuries, conceiving many theories to explain it.

The traditional economic view is that people make rational choices when they face risk. However, recent research has demonstrated that people often behave irrationally in response to uncertainty. The ongoing efforts to understand the dynamics of risk are important because those dynamics influence decision makers in business and finance.

Businesses that succeed over the long term do so by managing risk to their benefit. Different companies and industries vary in their focus on risk management. Few fields...

About the Author

Aswath Damodaran is a professor of finance at New York University’s Stern School of Business. He has published books and articles on valuation, portfolio theory and corporate finance.

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