zmVault/new-additions/the-failure-of-risk-management.md

The Failure of Risk Management

The Failure of Risk Management (Why It's Broken and How to Fix It) by Douglas W. Hubbard

Key Takeaways

Qualititative risk analysis (i.e. risk matricies, scoring charts) departs from legitimate statistical methodology and has no robust evidence to suggest its efficacy. There is good reason to believe that such methods are deleterious to their intended purpose in contradiction to the common response that they are "better than nothing".

Expected Value (Probability × Magnitude) alone can not predict or inform risky decisions, except for risk-neutral parties. People and organizations are risk-averse TODO: see chapter 6

Mentioned Topics and Abbreviations

Analytic Hierarchy Process (AHP) Multi-Attribute Utility Theory (MAUT) Actuarial Science Options Theory (OT) Modern Portfolio Theory (MPT) Probabalistic Risk Analysis (PRA) Value at Risk (VaR) Loss-Exceedance Curve (LEC) Risk Tolerance