A difficulty in performing any risk disclosure study is that to identify risk disclosures requires ‘risk’ to be defined. Lupton (1999) notes that in everyday language ‘risk’ is used very broadly; for example in lieu of hazard, threat or harm. By comparison, finance textbooks typically define ‘risk’ as referring to a set of outcomes arising from a decision that can be assigned probabilities whereas ‘uncertainty’ arises when probabilities cannot be assigned to the set of outcomes (Watson and Head, 1998).
These textbook definitions of risk and uncertainty reflect events that have occurred during the modern era(Reddy, 1996). Pre-modern ideas of risk were connected to the occurrence of natural events, for example hurricanes (Lupton, 1999). The development of probability calculations and the insurance industry during the industrial revolution impacted upon ideas of risk. The chances of outcomes then became susceptible to
mathematical calculations and compensation could be paid out when a negative outcome occurred (Ewald,1991).
These Textbook definitions of risk are therefore derived from modernist ideas of risk, with economists developing the idea of uncertainty to deal with situations where probabilities were not available (Reddy, 1996). Thus the modernist view of risk incorporates both the positive and negative outcomes of events. This contrasts with the
pre-modern era where risks were solely considered to be bad.