Which of the following explains the concept of risk ?
When the variability of possible outcomes is very high
When the variability of possible outcomes is very high option is correct.
In economics and finance, risk refers to the dispersion of possible outcomes of a decision whose probabilities are known. The greater the dispersion — measured by variance or standard deviation — the riskier the prospect. A lottery whose payoff spans a wide range is considered riskier than one whose payoff barely varies around its mean.
Formally, if outcomes X have expected value E(X) then risk is captured by \(\operatorname{Var}(X)=E[(X-E(X))^2]\) or its square root \(\sigma_X\). High variance implies a very uncertain outcome, hence high risk.
Low variability means outcomes cluster tightly around the expected value, which is the low-risk case, not the definition of risk. Constant or perfectly predictable outcomes describe certainty, not risk, and “highly accurate” variability is not a meaningful statistical description.
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