A page for other references, links to other sites and matters of interest relating to governance, risk & uncertainty, control and assurance
Here are a few links to really useful or important documents in risk management:
First, the must-read from Bertrand Russell: his 1912 essay On Induction (later published in Problems of Philosophy). This is the problem Taleb later identifies with cygnus atratus (black swans). As a thought exercise, put yourself in the mind of Russell’s chicken.
Fast-forward a few years and the young discipline of sociology was beginning to find its feet. An early contributor to the debate was US sociologist Robert Merton (whose son, in an ironic twist – at least as it relates to financial regulation – won along with Myron Scholes the Nobel prize in economics – Black had died earlier and was ineligible – for options pricing theory and calculus). In the first volume of the American Sociological Review, Merton published an essay that gave the world the (mis-quoted) phrase ‘unintended consequences‘. Wonderful and powerful stuff.
Next, a couple of forensic analyses of problems: the UBS report to shareholders on the problems in their CDO derivatives business in 2007 and Nobel laureate Richard Feynman’s personal addition to the Rogers’ Commission investigating the Challenger explosion. The UBS report is a tricky read, especially if you do not have a finance background (and not so easy even if you do). But it is fascinating and seems truthful and is well worth persevering with.
Thirdly, read anything by Mike Power of LSE on the subjects of risk and control. Mike is one of the clearest thinkers on risk in academe (and is also a practitioner at non-executive level) and his work stands in a class of its own for clarity of thought (if not always simplicity of language; he is a philosopher and an accountant by training, an unlikely – if not antithetical – combination). My personal favourites are The Risk Management of Everything and a recent (and very accessible) contribution to a Canadian magazine – on the difference between smart questions and dumb questions.
For how life actually works, everybody is rushing to behavioural economics, as if it were a ‘new’ discovery. It is not. Utility theory is as old as economics itself (or almost) and the idea of emergent phenomena is not new either. Two of the best, on related topics, are the brilliant Malcolm Gladwell’s Tipping point essay and late, great US political scientist James Wilson’s Broken windows (published in Atlantic Monthly). I was a particular fan of the late Prof. Wilson’s writing – his work on bureaucracy was very formative for me.
Of all the essays ever written on risk and control, none – repeat none – surpasses William Langewiesche’s essay on the causes of the crash of Valujet 592 in the Everglades in 1996. Atlantic Monthly is a journal of huge importance, that is often neglected on this side of the Atlantic. Prospect, in the UK, is of a similar stature – on which subject, see the debate on the social utility of banking, in which Adair (Lord) Turner made his now infamous “socially useless” remark. Langewiesche’s article is a towering contribution to thinking on the relationship between risk and control in a human world. Everyone, everywhere should read it.
If you are at all interested in banking regulation, Lord May and Andrew Haldane’s Nature article on systemic risk is an essential read. Bob May is one of the world’s clearer thinkers on systems and what they are and mean; Andy should be making more of a difference than he is – perhaps, he who pays the ferryman calls the tune.
No discussion on risk is complete without sampling the work of Rene Stulz. Rene’s work is superb and his thinking clear. Either of his equally seminal contributions – ‘Rethinking risk management‘ in 1996 or 2006 co-authored with Brian Nocco – will do. The earlier work is the theoretical approach; the latter work reviews application in practice.
More to come . . .