Managing risk effectively is essential for a business to be successful, and thus understanding risk is vital for business executives. Effective risk management increases firm value, whereas poor risk management will damage shareholder wealth. In this article, we examine the risk literacy of business executives and find significant variation among the leaders we sample. Our findings suggest that business executives would be well served to evaluate their own risk literacy (and remediate, if necessary), to work to increase risk literacy in the company’s employees, and to include risk literacy as an important and routine part of the firm’s overall culture. Because the importance of risk literacy increases with business complexity, we believe that risk literacy will only become more important in the future.
