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Strategic Risk Taking: A Framework for Risk Management by Aswath Damodaran

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Chapter 9. Risk Management: The Big Picture

Let us take stock of what we have established so far. Human beings are risk averse, although they sometimes behave in quirky ways when confronted with uncertainty, and risk affects value. The tools to assess risk have become more sophisticated, but the risks we face have also multiplied and become more complex. What separates business success from failure, though, is the capacity to be judicious about which risks to pass through to investors, which risks to avoid, and which risks to exploit.

In Chapter 1, “What Is Risk?,” we also noted that risk hedging has taken far too central a role in risk management. In this chapter, we will draw a sharper distinction between risk hedging, which is focused on reducing ...

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