Definition - What does Subjective Risk mean?
Subjective risk is the perceived chance of something bad based on a person’s opinion, emotions, gut feeling, or intuition. It is not a mathematical review of the situation, but rather a quick assessment based on a person's feelings at the time. For example, a superstitious person might skip a flight on Friday the 13th because they see a subjective risk.
Insuranceopedia explains Subjective Risk
Insurance companies try to avoid using subjective risk to make their decisions because of the lack of evidence supporting this kind of assessment. Moreover, the level of subjective risk differs widely from person to person so it does not allow for a consistent business plan.
Instead, insurance companies look at objective risk to make their decisions, which is the mathematical chance of a problem occurring. Instead of relying on feelings or superstition, it means analyzing and assessing situations empirically.
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