Overview

idiosyncratic risk


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Risk of a type which affects each individual case largely independent of others. This could apply to the risk of an individual dying, of a house catching fire, or a car having an accident, during any period. Idiosyncratic risk allows insurance companies, by pooling risks, to insure customers, while keeping their own overall risk exposure relatively small. This is contrasted with market risk, where events such as a slump, a flu epidemic, or a hurricane affect large numbers of individuals in a similar manner.

Subjects: Economics.


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