{read online} Rules of Risk C: Surveying the Future of Risk - Rewriting the Rules of RiskAuthor Dembo – Schematicwiringdiagram.co

This book establishes a strong foundation in risk management It leans substantially on decision theory and behavioral economics Its main concept is regret Regret is downside risk We can insure against that downside risk by buying a Put option Even if we deal in illiquid markets where such options are not available, it is still key to calculate the economic value of regret or of that Put option if it were to exist Similarly, the upside of a transaction is equivalent to buying a Call option Mr Dembo comes up with this equation Upside Lambda Regret Lambda captures your risk tolerance If your risk tolerance is high, Lambda will be small The inverse is true too.With this straightforward model, the authors can explain a whole lot of economic incentives with a behavioral component For instance, you can easily explain why most people would not mind playing roulette with just a dollar bill But, the same people would not play with 100 dollar bills In effect, most people would rather take on a bad risk with poor odds on a small scale, than take on a better risk better odds on a larger scale. In high stakes investing and business, success or failure largely depends on how well you play the game of risk a game in which the rules of competition are constantly being rewritten Strategies that proved effective in the past are no longer enough to win today The key to success is not to rely on yesterday s news, but to peer into the future and ask what could happen tomorrow Presenting a bold new way of thinking about risk, in Seeing Tomorrow Ron Dembo and Andrew Freeman offer a dynamic framework designed to enhance our ability to make important decisions, and consequently change how we manage our investments By incorporating investors individual circumstances and tolerances as well as the unique reasoning behind their decision making this innovative approach captures much of how we actually think about risk From the basic building blocks required for forward looking risk management, Dembo and Freeman define and explore the roles and significance of such fundamentals as time horizons, risk measures, benchmarks, and scenarios Once the foundation is laid, these elements are used to construct a solid architecture for risk management and risk adjusted analysis that is not only general enough to be able to handle a multitude of risks, but also able to present many different measures of risk With clear cut explanations and intriguing real world examples, Seeing Tomorrow leads you step by step through the authors groundbreaking risk rules These include choosing an appropriate time horizon, selecting scenarios, computing Value at Risk VAR , assessing both the upside and downside of a potential deal, calculating Regret, and compiling a reliable Regret matrix By combining Regret, Upside, and a measure of our tolerance for risk, the authors demonstrate how these components create a powerful new way of approaching decisions They offer guidance on very specific real life problems such as buying a house or suing someone as well as on broad matters of strategy and investing Written by two leading authorities in the field, Seeing Tomorrow is a milestone addition to risk literature that will dramatically alter the way you view, identify, and manage risk It is must reading for investors and decision makers alike Seeing Tomorrow is a powerhouse in the understanding of risk With their ingenious blend of psychology and rigorous quantitative analysis, the authors have created an authoritative and innovative handbook of risk management that is essential for both practitioners and theoreticians Peter L Bernstein author, Against the Gods and Capital Ideas This excellent and readable book provides an innovative approach to choosing actions when the outcomes are uncertain Anyone with an interest in improving their decision making skills would benefit from reading this Anyone with a professional interest in risk management must read it Stephen A Ross Fischer Black Visiting Professor of Finance Massachusetts Institute of Technology Sloan School of Management Sterling Professor of Economics and Finance, Yale University Ron Dembo and Andrew Freeman have done an excellent job of describing how to think about and measure risk This will become required reading for businesses and personal investment executives Ned C Lautenbach