Descriptive Models of Perceived Risk

Risk plays a central role in decision making. Accordingly, risk has been a popular research topic for more than four decades. Finding a generic definition of risk is hard, since this term is used in many areas such as economics, political science, management science, and medical research. However, one thing in common is that risk is always related to both the negative outcomes and uncertainty. In addition, we know that risk is normally subjective and constructed by a human’s perception process. But indeed how do people perceive risks? Is there any model capable of describing this procedure and predicting people’s perceived risk? In this article, we focus on empirical studies of perceived risk. In operations research/management science as well as in psychological research, much effort has been spent on defining the subjective perception of risk. The central topic is how we can define or predict people’s perceived risk of a risky option based on the characteristics of that option. The basic structure has been simply depicted in Fig. 1 below. In Fig. 1, vector C represents an option’s characteristics related to its perceived risk. The characteristics can be objectively known or can be based on subjective judgments, and the perceived risk is a real function of these characteristics. Thus, the main research objective is to find what C includes and what the functional form f (·) is.