Complex interactions are impossible to fully enumerate beforehand, so it is dangerous to try reducing one’s uncertainty by “hedging” the risk of one action by taking on another speculative bet, which a risk calculation says is in the “other” direction.
I will be a student in LSE’s MSc Risk and Finance course from 2014-2015, studying quantitative financial risk management, financial & corporate crime, and comparative regulatory philosophy.
When we think about the uncertain future through the lens of risk management, we misunderstand the meaning of probability. In short, we treat the real world too much like a game of chance, and in doing so, we make three big mistakes: we try to play the odds, we think of the parts but forget the whole, and we think we know just how bad things can get.