As Nassim Nicholas Taleb famously explained in The Black Swan, it is the unexpected that is most unexpected. For compliance professionals, testing is one of the tools that tries to expose the unexpected. I was thinking about testing as I was out in the snowpack in my front yard. I tried out some of the … Read more »
Tag: Black Swan
Nobody Expects The Spanish Inquisition
The most dangerous parts of managing risk are the risks you don’t expect. Looking back at my old four-box analysis, there are really two types of unexpected risks, the risk that you know that you don’t know and the risk that you don’t know that you don’t know. In the first case you know there … Read more »
My Encounter with a Black Swan
I had my first encounter with a black swan. Not Taleb’s Black Swan. A real black swan. From 2010 Blank Park Zoo in Des Moines Iowa The encounter was unexpected, but there was no significant loss or gain. Read more »
The Drunkard’s Walk, The Butterfly Effect and The Black Swan
The “drunkard’s walk” refers to the Brownian motion, the seemingly random movement of particles suspended in a fluid. The original thought was that you might be able to calculate the movement by measuring and calculating the interaction. It proved impossible. There are too many factors and too many interactions. Small changes in a system can … Read more »
Six Mistakes Executives Make in Risk Management
Nassim N. Taleb, Daniel G. Goldstein, and Mark W. Spitznagel discuss risk management and short comings in approaches in the October 2009 issue of the Harvard Business Review (subscription required). They offer up six mistakes in the way we think about risk: 1. We think we can manage risk by predicting extreme events. 2. We … Read more »
The Four Areas of Risk and Knowledge
When thinking about risk, I break things into four quadrants. There are things we know and there are things we don’t know as individuals. I then slice slice that further again with the things we know and the things we don’t know as part of the larger organization or conscious state. Our sweet spot is … Read more »
Ten Principles for a Black Swan-Proof World
Nassim Nicholas Taleb penned an opinion piece in the Financial Times: Ten principles for a Black Swan-proof world . Check out the piece for details behind each item: 1. What is fragile should break early while it is still small. 2. No socialisation of losses and privatisation of gains. 3. People who were driving a … Read more »
Book Review: The Black Swan
I just finished reading The Black Swan by Nassim Nicholas Taleb. The title of the book comes from the observations of Europeans that all swans are white. Much to their surprise, they came to Australia and found their first black swan. The book starts with this story to illustrate the “limitations to our learning from … Read more »
Risk Mismanagement
I really enjoyed the story by Joe Nocera in the New York Times: Risk Mismanagement. The author focuses on the failures of risk management during the most recent financial crisis. The author starts with the failure of the VaR (Value at Risk) model used by many companies. He then moves on to the theories of … Read more »