Risk Management

In a post from last year, I wrote about Luhmann’s Risk: A Sociological Theory (1993 English translation). The main idea is that functional differentiation is associated with a shift from danger to risk. The difference is that danger is random while risks are associated with human decisions and the assumption that the future is not predetermined. There is a different sense of time as society moves from a time/eternity code to a code in which the present is the difference between the past and future. Or we can say there are operative two codes–present/past and present/future. The present is different from the past and also different from the future. The future is unmarked in both cases. It is the blank side of the distinction, or the place from which we see the marked side. Decisions are always made in the present because, obviously, action or communication can only happen in the present.

Premodern society, in contrast, used the time/eternity code. From this perspective, a person’s lifetime is carved out of eternity. In this distinction, time is just time (all one movement), and past, present, and future are not meaningfully distinguished. Thus, the what we moderns call the past and the future are always always present. Thus, the “sins of the fathers”  or “original sin” live on in the present. But because the past is not actually the past, sins from the past can be erased through forgiveness or absolution. And the what we call the future is not a source of anxiety or concern because time simply unfolds,  for better or worse, and current decisions and plans cannot alter this unfolding.

Such a society knows danger but not risk. Dangers are everywhere (strangers, predators, etc.), but no risks. Daily life is simply dangerous. Risk differs from danger because risk involves a decision and presupposes a possible future loss or gain. The future is not predetermined; it’s not already out there waiting for us. One makes a decision, such as investing money, hoping for some future benefit. Risk has been defined as “the potential of gaining or losing something of value” or as as “the intentional interaction with uncertainty.” Risks are subject to statistical analysis, and they can be managed.

We can look for empirical evidence that society has shifted its communication topics from danger to risk over the years. For instance, here is an Google Books Ngram tracking the use of these two terms in English from 1800 to 2008:


Danger shows a steady decline over the two centuries, while risk rises very slowly until hitting a sudden, dramatic rise in about 1966. This is clearly associated with the field of risk management. Below is an Ngram for risk management from 1950-2012.

risk management1

There is nothing before the late 1950s but a clear rise starting in the 1970s.  This statement is confirmed by an article on risk management (Georges Dionne, 2013) that states that the field began in the 1950s and “the use of derivatives as risk management instruments arose during the 1970s.”

The invention of insurance was central to the shift toward risk management. The following Ngram indicates that communication about (or interest in) insurance (in English-speaking countries) took off in about 1880.


The Ngram evidence is borne out in histories of insurance. According to Encarta,

Health insurance in the United States is a relatively new phenomenon, dating to the time of the Civil War (1861-1865). Early forms of health insurance mainly offered coverage against accidents arising from travel, especially by rail and steamboat. The success of accident insurance paved the way for the first insurance plans covering illness and injury. The first insurance against sickness was offered by Massachusetts Health Insurance of Boston in 1847. Insurance companies issued the first individual policies offering disability insurance in 1890.


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