The Illusion of Control Why Financial Crises Happen, and What We Can (and Can’t) Do About It

Description

A challenge to the conventional wisdom surrounding financial risk, providing insight into why easy solutions to control the financial system are doomed to fail Finance plays a key role in the prosperity of the modern world—but it also brings grave dangers. We seek to manage those threats with a vast array of sophisticated mathematical tools and techniques of financial risk management. Too often, though, we fail to address the greatest risk—the peril posed by our own behavior. Jón Daníelsson argues that critical risk is generated from within, through the interactions of individuals and perpetuated by their beliefs, objectives, abilities, and prejudices. He asserts that the widespread belief that risk originates outside the financial system frustrates our ability to measure and manage it, and the likely consequences of new regulations will help alleviate small-scale risks but, perversely, encourage excessive risk taking. Daníelsson uses lessons from past and recent crises to show that diversity is the best way to safeguard our financial system. Cover Half Title Title Copyright Contents Acknowledgments 1 Riding the Tiger 2 Systemic Risk 3 Groundhog Day 4 The Risk Panopticon 5 The Myth of the Riskometer 6 Ideas Matter: Risk and Uncertainty 7 Endogenous Risk 8 If You Can’t Take the Risk, Change Riskometers 9 The Goldilocks Challenge 10 The Risk Theater 11 The Uniformity, Efficiency, and Stability Trilemma 12 All about BoB: Robots and the Future of Risk 13 The Path Not to Take 14 What to Do? Notes Bibliography Index A B C D E F G H I J K L M N O P R S T U V W X Y Z