On the Etymology of Risk

I often like to begin classes on statistics by talking about the etymology of the word average, and it is such a lovely story:

Everybody associated with transporting goods by sea had to deal with the chance that only a part of the consignment would actually reach the intended destination. There was always the chance that a part of the consignment would go bad, or needed to be jettisoned, or some such. Who bears the loss of this part of the total consignment? Should it be the sending merchant, the receiving merchant or should it be the captain of the ship?

Thus, when for the safety of a ship in distress any destruction of property is incurred, either by cutting away the masts, throwing goods overboard, or in other ways, all persons who have goods on board or property in the ship (or the insurers) contribute to the loss according to their average, that is, according to the proportionate value of the goods of each on board. [Century Dictionary]

https://www.etymonline.com/word/average

The latter half of that excerpt above is nothing but “sigma x by n” – the total losses divided by the number of people involved. This, of course, is nothing but the formula for average. But the word itself comes from the word loss, but in Arabic – awargi, or awariya. Or as I like to tell my students, you’re really speaking Arabic when you’re saying “average”.


Psyche.co has a lovely essay on both the etymology of, and the emergence of the concept of, risk. Authored by Karla Mallette, it is a lovely little rumination on both the meaning of the word, and how it has evolved over time.

The first known usage of the Latin word resicum – cognate and distant ancestor of the English risk – occurs in a notary contract recorded in Genoa on 26 April 1156. The captain of a ship contracts with an investor to travel to Valencia with the sum invested. The contract allocates the ‘resicum’ to the investor.

https://psyche.co/ideas/how-12th-century-genoese-merchants-invented-the-idea-of-risk

This is entirely speculative on my part, because I know next to nothing about Latin, but a simple Google search for the meaning/etymology of resicum tells me that it means “that which cuts, rock, crag”. If one agrees with the notion that ship voyages at the time must have been fraught with risk, then the etymology of risk begins to make eminent sense – the entirety of the prospective profit from such a voyage can end up being cut down to zero. One could earn all of it, or one could get none of it – that, of course, is the risk involved in such a structure.


The essay remains of interest beyond just this point:

Before the innovation of the resicum, captain and crew took on the risks of the journey alone: only they would shoulder the burdens (and pocket the profits). But resicum shared out potential profit and loss among a broader community. It put a number on contingency, and in so doing it rationalised risk.

https://psyche.co/ideas/how-12th-century-genoese-merchants-invented-the-idea-of-risk

In this context, one needs to realize that the author is talking not about the original meaning of the word resicum. Rather, she is implying that resicum has a modern, institutional meaning now – the idea that resicum (or risk) is being diversified. The captain doesn’t bear the risk alone, although he does bear part of it (typically 25% in those times). Somewhat analogous to what we could call sweat equity these days, I suppose. The rest of the risk, or resicum, is parcelled out to investors who are willing to stump up the cost of the voyage. If the captain comes back empty handed, they lose their investment. If the captain comes back from the voyage, his ship laden with precious cargo, then the investors reap the benefits of having funded the voyage.

This arrangement was called resicum, and it seems to have meant an arrangement which had the ability (but not the guarantee) to provide sustenance.

Historians believe that resicum derived from an Arabic word, al-rizq. The Arabic rizq is Quranic. It refers to God’s provision for creation. This verse, for instance, uses the noun and a verb derived from the same lexical root, and refers to the sustenance that God provides for all of creation: ‘And how many a creature does not carry its own provision [rizq]! God provides for them and for you: he is the All-Hearing, the All-Knowing.’ During the Middle Ages, the word was used to name the daily subsistence pay given to soldiers. In the dialect of al-Andalus (Arab Spain), it referred to chance or good fortune. Rizq, it seems, bounced from port to port around the Mediterranean, until it landed on the worktable of a scribe in Genoa recording a strategy used to share out the risk of trans-Mediterranean trading ventures by betting against catastrophe.

https://psyche.co/ideas/how-12th-century-genoese-merchants-invented-the-idea-of-risk

So from providing for, to meaning good fortune, to our modern understanding of the word risk, the word has been on quite a journey, and is in fact a good way to understand all of what risk means.


A little postscript: I came across this article via The Browser. And second, if you haven’t read it, Against the Gods: The Remarkable Story of Risk by Peter Bernstein is a good introductory book to read about the topic.