C. Warren Axelrod

Risky Behavior – New York Times’ Swan Songs

In an earlier column, Security and Change: Black Swans, posted on April 14, 2008, I drew your attention to an excellent book called The Black Swan written by Nassim Nicholas Taleb. Taleb points out that humans are particularly poor at predicting and preparing for catastrophic events, such as the recent financial meltdown.

2 Comments

  1. Ken Salchow Feb 17, 2009 at 9:18 am | Permalink

    This is exactly the reason why I always list Alien Invasion in my risk assessments. The point is to break the normal barriers of thought and get people to really brainstorm about the very real potential of things that they wouldn’t normally think of.

    AND, of course, when the Alien’s do invade, I know I’ll be able to prove due diligence. 😉

    Thanks for the post and the continued efforts!

  2. Jamie Saker Apr 19, 2009 at 10:18 am | Permalink

    Or Brooks could have read Bookstaber’s “Demons of Our Own Design” (April 2007), which is black-swanesque in its exploration of financial risk and the derivatives market. Bookstaber’s discussion of complex systems and tight linkages is a particularly valuable contribution to the world of financial and operational risk literature.

    Bookstaber also has a must read chapter on the importance of derivatives markets as a supplier of liquidity. The entire book gives one of the better educations on how financial markets are paying you increasingly for liquidity risk taken — more than most other coefficients. Remove derivatives markets and you will increase market volatility. Of course, there still are countless challenges we have yet to figure out with markets. The dominant presence of a single player on one side of a contract (e.g. LTCM, Amaranth) causes market noise to become signal and subsequently defeats traditional concepts of market behavior. Like operational risk, large regions of homogeneous condition in the risk terrain distort market rule behavior in a manner similar to the time/space distortion the movement of planetary bodies creates through space.

    I’d recommend both Bookstaber’s book (available in paperback and Kindle now) as required reading for any serious IT or operational risk professional.

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