Designing a rational process for risk-taking (original) (raw)

Risk Management–Managing Risks, not Calculating Them

Risk and Insurance, 2004

The expected utility approach to decision making advocates a probability vision of the world and labels any deviation from it 'irrational'. This paper reconsiders the rationality argument and argues that calculating risks is not a viable strategy in an uncertain world. Alternative strategies not only can save considerable cognitive and computational resources, but are more 'rational' with view to the restricted definition of rationality applied by expected utility theorists. The alternative decision making model of risk management is presented and explained.

The rationalization of risk

Society and Natural Resources, Draft of …, 1999

Rather than a new feature of modern industrial society, we argue that the much-discussed problem of "risk" represents only a modern conceptual language for discussing the age-old problems of uncertainty and control. What is different about the worries of the present day is not the ...

Living in a Stochastic World and Managing Complex Risks

HAL (Le Centre pour la Communication Scientifique Directe), 2015

If there is a concept that has gained awareness during the financial crisis of 2008/2009, it is certainly the concept of risk and its consequence in risk management. The failure of many financial institutions to grasp the risks they were taking appeared so clearly and was so costly that the subject became central both with the regulators and more generally within society. Even though risk is an old concept, its perception has changed over the ages. In this century, the increase of wealth and the advances of scientific techniques may give the illusion to mankind that it has full power over Nature. People are either risk adverse or risk prone, without accepting its possible negative consequences, reactions that could be qualified as extreme and silly. Looking at it in a binary way does not help us cope with it. There is indeed little rational behavior when risk is concerned. Instead we should consider its right definition to be able to manage it.

Decision Making Under Risk: A Prescriptive Approach

2009

Abstract This article takes the form of a research proposal. The paper seeks to address the problem faced by investors of how best to deal with decision making under risk. The methodology utilizes a normative model from economics—expected utility theory—and a descriptive model from psychology—prospect theory—to formulate a rational but realistic compromise between the two: a prescriptive model of risk preferences.

Modeling, Measuring and Managing Risk

2007

It is problematic to treat systemic risk as a merely technical problem that can be solved by natural-science methods and through biological and ecological analogies. There appears to be a discrepancy between understanding systemic risk from a natural-science perspective and the unresolved challenges that arise when humans with their initiatives and interactions are included in systemic-risk considerations. It is therefore necessary to investigate possible fundamental differences and similarities of systemic risk with and without accounting for human involvement. Focusing on applied and implementation aspects of measuring, modeling, and managing systemic risks, we identify three important and distinct features characterizing such fundamental differences: indetermination, indecision, and responsibility. We contend that, first, including human initiatives and interactions in systemicrisk considerations must emphasize a type of variability that is especially relevant in this context, namely the role of free will as a fundamental source of essential indetermination in human agency. Second, we postulate that collective indecision generated by mutual uncertainty often leads to the suspension or alteration of rules, procedures, scripts, and norms. Consequently, the associated systemic risks cannot be incorporated into explanatory models, as the new causal rules cannot be predicted and accounted for. Third, analogies from biology and ecology, especially the idea of 'contagion,' downplay human agency, and therefore human responsibility, promoting the false belief that systemic risk is a merely technical problem. For each of these three features, we provide recommendations for future directions and suggest how measuring, modeling, and managing approaches from the natural-science domain can best be applied in light of human agency.

Risk and Decision Making: The “Logic” of Probability

The Mathematics Enthusiast, 2015

Risk is a hot topic. There is an international trend to use examples of risk or the concept of risk in the early teaching of probability. It enriches the problems, it widens the contexts, and it motivates the students to learn probability. This paper illustrates the notion of risk as a multi-faceted concept. The diverse perceptions start with language where risk is used in very different ways. The overlap of risk and hazard is not restricted to the technical context of safety and reliability; Knight's seminal work on risk and uncertainty has its definite impact on today's perception of the notions. The endeavour to re-interpret issues of statistical inference by risk-the risk of type I and II errors-or the concept of the weighted impact of decisions (in decision theory and in Bayesian framework) can clarify what risk means within mathematics but-as the whole machinery of statistical inference is difficult to understand-it may have little consequence on how the majority of people act and understand the notion of risk. Kahneman and Tversky show that the perception of risk is influenced by psychological factors and assert that people are risk averse in winning situations while they are risk seeking in losing situations. The perception of risk is dominated by the impact (loss or win) so that even a thorough judgement of the underlying probabilities is biased. If risk is shared between several stakeholders, they all have to use their own ingredients for their model of the same situation and follow their own logic. This leads to non-unique answers, which is unusual in mathematics. Methods of simplifying problems, the way to find a solution, and understand the underlying concepts more easily may induce a shift from a refined perception of the (hypothetical) models involved towards factual knowledge. The article aims to clarify these issues, which influence the ways to conceptualize, perceive, and teach the notion of risk.

Models and experiments in risk and rationality

Journal of Economic Behavior & Organization, 1996

By Paul S. Carlin; Models and experiments in risk and rationality: Bertrand Munier and Mark J. Machina, eds., (Kluwer Academic Publishers,.

A new Way to understand risk,

Sincronia, Nueva Epoca. Universidad de Guadalajara Mexico 2012. Diciembre.

The question of risk has been opened after the WTC attack. America experienced an unprecedented fear as neve before. The risk becomes in our late modernity as the mediator between people. In a world where depersonalization and indiference predominate, risk connects the self towards the social economy. This paper is a jointly efforts jointly to one of the best scholars dedicated to the study of risk, Geoffrey Skoll, to examine in depth the role of risk in our society.