What is risk?
Risk. That’s the focus of this month’s edition. It’s been defined by some as the fact that more things can happen than will happen. It’s also been equated to degrees of uncertainty, although some would argue that uncertainty and risk are not the same thing. Volatility also often is equated with risk; yet again, many would argue that volatility in and of itself provides an insufficiently clear or complete definition of risk.
One of the areas of risk most folks seem to fail to address is those risks identified as behavioural in nature — the human tendency to make poor decisions due to the failure of heuristics that usually serve us well. These have been well documented in books like Daniel Kahneman’s Thinking Fast and Slow, Michael Lewis’ The Undoing Project and Rolf Dobelli’s The Art of Thinking Clearly, among others.
The work of Nassim Nicholas Taleb (Fooled by Randomness, The Black Swan, Skin in the Game