Opportunity loss: Difference between revisions
imported>Doug Williamson (Expand 2nd definition.) |
imported>Doug Williamson (Add link.) |
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1. | 1. ''Hedging - regret risk.'' | ||
The worsening of a financial position when effectively 'locked in' to a course of action or to a particular fixed price or rate, compared with the alternative which could have been followed without the lock-in. | The worsening of a financial position when effectively 'locked in' to a course of action or to a particular fixed price or rate, compared with the alternative which could have been followed without the lock-in. | ||
For example, there is always a risk of opportunity losses when | For example, there is always a risk of opportunity losses when using a fixing instrument to effectively lock in a (committed) price. | ||
We are effectively locked in to the predetermined and committed price, instead of being free to take advantage of actual market rates (if they turn out to be more favourable). | We are effectively locked in to the predetermined and committed price, instead of being free to take advantage of actual market rates (if they turn out to be more favourable). | ||
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2. | 2. ''Operational and other contexts.'' | ||
Any loss resulting from a failure to take advantage of an opportunity. | Any loss resulting from a failure to take advantage of an opportunity. | ||
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* [[Opportunity cost]] | * [[Opportunity cost]] | ||
* [[Opportunity risk]] | * [[Opportunity risk]] | ||
* [[Reckless prudence]] | |||
* [[Regret risk]] | * [[Regret risk]] | ||
[[Category:Self_management_and_accountability]] | |||
[[Category:Financial_risk_management]] | |||
Latest revision as of 05:08, 15 June 2022
1. Hedging - regret risk.
The worsening of a financial position when effectively 'locked in' to a course of action or to a particular fixed price or rate, compared with the alternative which could have been followed without the lock-in.
For example, there is always a risk of opportunity losses when using a fixing instrument to effectively lock in a (committed) price.
We are effectively locked in to the predetermined and committed price, instead of being free to take advantage of actual market rates (if they turn out to be more favourable).
This type of loss is also sometimes known as an 'opportunity cost'.
2. Operational and other contexts.
Any loss resulting from a failure to take advantage of an opportunity.
This type of opportunity loss can result from analysis paralysis, other factors, or both.
