Final answer:
Risk measurement should be understood as evaluating the potential for severe outcomes from low-probability events, similar to the concept of buying insurance against catastrophic losses. The tradeoff between risk and return is essential in financial decisions, influenced by personal preferences and investment time frames. A thorough risk assessment is crucial across various fields to inform decision-making.
Step-by-step explanation:
The proposed measurement of risk mentioned should be interpreted as a way to determine the potential impact of low-probability events that could have severe consequences. The approach is akin to purchasing insurance; it is a way of planning for and mitigating possible future losses or damages. The concept is relevant in various contexts, from health and safety to financial investments. The idea is that taking preventive measures or preparing for such risks usually involves some cost (which could be seen as 'wasted' if the event doesn't occur), but the potential loss from not preparing could be much higher, possibly catastrophic.
In the financial world, the tradeoff between return and risk is a significant factor to consider when making investment decisions. People have different personal preferences when it comes to taking risks, and their choices could depend on the expected returns and their time frame for investing. A comprehensive risk assessment is essential for making informed decisions, whether it's in the context of health, safety, or finance.