What is risk tolerance?

Question

Options

• AAbility to manage risks
• BWillingness to accept varying degrees of risks
• CAbility to mitigate risks
• DWillingness to develop a risk management plan

• A
  5% (1)
• B
  71% (15)
• C
  14% (3)
• D
  10% (2)

Explanation

Risk tolerance refers to the degree of uncertainty or potential loss that an individual or organization is willing to accept - making B correct, as it captures both the psychological/attitudinal nature of the concept and the spectrum ("varying degrees") of risk acceptance.

Why the distractors are wrong:

• A (ability to manage risks) confuses tolerance with capability - you might be able to manage risks but still be unwilling to accept them.
• C (ability to mitigate risks) describes risk mitigation skills, a separate concept about reducing risk impact, not your appetite for it.
• D (willingness to develop a risk management plan) is about planning behavior, not about how much risk you're comfortable carrying.

Memory tip: Focus on the word tolerance - just like pain tolerance means how much pain you're willing to endure, risk tolerance means how much risk you're willing to endure. Willingness = attitude, not ability.

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