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THE 6 MISTAKES EXECUTIVES
MAKE
in Risk Management
Article by Naseem N.Taleb ,Daniel
G.Goldstein and Mark W.Spitznagel
INTRODUCTION
Forecasting Events- Highly risky to determine
Risk mgt models of Bank- increased exposure
to risk instead of limiting it and rendered global
economic system fragile
Complexity-
1) Because of internet and globalisation world has
become a complex system
2)increased incidences of black swan also makes
forecasting even ordinary events impossible.
Just can predict the companies that ignore black
swan events
MISTAKES
 We think we can manage risk by predicting
extreme events
 We are convinced that studying the past will
help us manage risk
 We don’t listen to advice about what we
shouldn’t do
eg. $ not lost is $ earned
integrate risk mgt activities into profit centers
& treat them into profit generating activities
 We assume that risk can be measured by
Std deviation
 We dont appreciate that whats
mathematically equivalent isnt
psychologically so
 We are taught that efficiency and
maximising shareholder value dont tolerate
redundancy
eg.Mr.Ricardo’s theory of comparative
CONCLUSION
 Black Swan events are increasingly
dominating social and economic media,
IGNORE them.
 Do not be in the illusion that you can
predict(Black Swan Events)
 Avoid developing sophisticated techniques
that preserve the illusion of being able to
understand and predict these events.
 Need to change the way of thinking about
risk
 Avoid making the above six mistakes
THANK YOU

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Mstakes made by Executives

  • 1. THE 6 MISTAKES EXECUTIVES MAKE in Risk Management Article by Naseem N.Taleb ,Daniel G.Goldstein and Mark W.Spitznagel
  • 2. INTRODUCTION Forecasting Events- Highly risky to determine Risk mgt models of Bank- increased exposure to risk instead of limiting it and rendered global economic system fragile Complexity- 1) Because of internet and globalisation world has become a complex system 2)increased incidences of black swan also makes forecasting even ordinary events impossible. Just can predict the companies that ignore black swan events
  • 3. MISTAKES  We think we can manage risk by predicting extreme events  We are convinced that studying the past will help us manage risk  We don’t listen to advice about what we shouldn’t do eg. $ not lost is $ earned integrate risk mgt activities into profit centers & treat them into profit generating activities
  • 4.  We assume that risk can be measured by Std deviation  We dont appreciate that whats mathematically equivalent isnt psychologically so  We are taught that efficiency and maximising shareholder value dont tolerate redundancy eg.Mr.Ricardo’s theory of comparative
  • 5. CONCLUSION  Black Swan events are increasingly dominating social and economic media, IGNORE them.  Do not be in the illusion that you can predict(Black Swan Events)  Avoid developing sophisticated techniques that preserve the illusion of being able to understand and predict these events.  Need to change the way of thinking about risk  Avoid making the above six mistakes