Risk, Reward and Uncertainty

All business decisions involve some degree of risk and uncertainty. Understanding the difference between the two — and how they relate to reward and opportunity cost — is essential for AQA A-Level Business Topic 3.2. This lesson explores these concepts in depth, examining how businesses assess and manage risk, and why different organisations have different attitudes towards it.

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Defining Risk and Uncertainty

Key Definition: Risk exists when the outcomes of a decision are not certain, but the possible outcomes and their probabilities can be estimated based on past experience or data.

Key Definition: Uncertainty exists when the outcomes of a decision cannot be predicted and probabilities cannot be meaningfully assigned. The future is genuinely unknown.

The Key Distinction