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Five Risks in How We Think About Risk

You can’t assess it perfectly, but you can assess it honestly

Jim Benson
Wed, 04/29/2015 - 15:41
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Risk mitigation, risk assessment, risk management: We insure ourselves against risk, put buffers in our estimates to compensate for risk, and we make decisions based on risk. Or do we?

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We think risk is a thing. It’s rarely a thing. Risk is part of the system we’re creating. It’s the variation, the unknowns, the bit that makes “value add” something someone hasn’t done before, and risk is always a result of experiments we’re running. Here are five risky ways we think about risk.

1.  Risk is quantifiable

Quantifying risk is like quantifying love. We don’t say, “There is a 0.9 correlation between your attractiveness attributes and my desire criteria. Therefore love, marriage, and children are a reasonably low-risk venture, and I’m willing to invest my life in it.” With eHarmony we could do exactly that. But we know that people don’t work that way. Even with firm evaluation criteria, people themselves are fraught with variation.

Risk, too, is fraught with variation, and regardless how much actuarial science we bring to the table, it’s always going to be a gamble.

 …

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