Final answer:
Managing a risk involves taking measures to minimize the potential negative impacts of uncertain events, often by insurance policies to protect against low-probability, high-consequence events.
Step-by-step explanation:
Action taken to manage a risk refers to the measures and strategies implemented to mitigate or control the potential negative effects of uncertain future events. An example of this risk management concept is described by the rationale behind purchasing insurance. People often take on insurance policies as a way to mitigate risks that have a low probability of occurring but could have catastrophic consequences if they do. This is a preventive approach reflecting the understanding that while the likelihood of such an event may be low, the severity of the outcome makes it worth the effort to plan for and protect against.
For instance, even though the probability of a serious house fire might be low, the impact would be high—potentially resulting in the total loss of one's home. Therefore, homeowners purchase insurance to transfer this risk to another party, reducing their potential risk exposure and providing peace of mind. This calculation weighs the cost of insurance against the benefit of protection from a highly damaging but unlikely event.