Comments on: Improbable and Devastating Events http://www.rethinkingmarkets.org/2007/05/18/improbable-and-devastating-events.html Economic Sociology from the Ground Up Fri, 30 Sep 2011 15:24:01 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Peter Levin http://www.rethinkingmarkets.org/2007/05/18/improbable-and-devastating-events.html#comment-8 Peter Levin Fri, 25 May 2007 15:14:43 +0000 http://rethinkingmarkets.org/2007/05/18/improbable-and-devastating-events.html#comment-8 Agreed, but this is not that particular case. The question Yuval (and Taleb) were thinking about was what risk managers should do. If their jobs consist of two parts - 1) figuring out where devastating risk is going to come from; and 2) convincing others in the organization to address it - then the question is more about 1 than 2. Yuval is, quite rightly, inching into 2, and I think you are just spot-on there as well. In fact, one of my favorite things about traders is their complete lack of giving a damn about what happens after they've made their bars/millions and left. Contract blows up? Customer screwed? Economy in shitter? I'm already gone. And yet. There is still a question about 1 (which is where I think Taleb really is at - he thinks a risk manager should be fired not for bad things happening, but for bad things happening that they didn't see coming down the pike). Per your comment, something could happen once every 50 years and be trivial or be devastating. I guess I'd say that rare does not necessarily equal more costly. Instead, as I think I've said, I've really been into infrastructure lately. So thinking about a continuum, or x/y matrix, of content and infrastructure is an exercise in that. Agreed, but this is not that particular case. The question Yuval (and Taleb) were thinking about was what risk managers should do. If their jobs consist of two parts – 1) figuring out where devastating risk is going to come from; and 2) convincing others in the organization to address it – then the question is more about 1 than 2. Yuval is, quite rightly, inching into 2, and I think you are just spot-on there as well. In fact, one of my favorite things about traders is their complete lack of giving a damn about what happens after they’ve made their bars/millions and left. Contract blows up? Customer screwed? Economy in shitter? I’m already gone.

And yet. There is still a question about 1 (which is where I think Taleb really is at – he thinks a risk manager should be fired not for bad things happening, but for bad things happening that they didn’t see coming down the pike). Per your comment, something could happen once every 50 years and be trivial or be devastating. I guess I’d say that rare does not necessarily equal more costly.

Instead, as I think I’ve said, I’ve really been into infrastructure lately. So thinking about a continuum, or x/y matrix, of content and infrastructure is an exercise in that.

]]> By: brayden http://www.rethinkingmarkets.org/2007/05/18/improbable-and-devastating-events.html#comment-7 brayden Fri, 25 May 2007 12:06:31 +0000 http://rethinkingmarkets.org/2007/05/18/improbable-and-devastating-events.html#comment-7 It's also possible that organizations may never strive to fix the problem because they see it as too costly. If you assess (correctly or incorrectly) that a problem will only arise once every fifty years, you may simply shirk the responsibility and let the next boss take care of it. Of course, you'd do lots of handwaving and appease the public but never have a real intent of dealing with the rare event. It’s also possible that organizations may never strive to fix the problem because they see it as too costly. If you assess (correctly or incorrectly) that a problem will only arise once every fifty years, you may simply shirk the responsibility and let the next boss take care of it. Of course, you’d do lots of handwaving and appease the public but never have a real intent of dealing with the rare event.

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