“Disaster myopia”: Failing to learn the lessons of increased uncertainty

From Andy Haldane at Bank of England in ft.com:

People tend to forget events that happened a long time ago and give much less weight to the probability that these will happen again. This “disaster myopia” led to models that hid the true probability of some disasters. A further look back into history would have shown fluctuations in UK GDP four times greater than that of the past 10 years, that of unemployment five times greater, that of inflation seven times greater and that of earnings 12 times greater.

The following is an extract from (with link to) my original article

Financial or physical loss doesn’t only stem from “risk”! Risk we know a lot about. Dare I say that we understand, can quantify and manage risk? I would add one caveat though. Much of the accumulated data upon which probability and, therefore, rating is calculated, relates to a period which bears little resemblance to the world and civilisation as it is today…or will be in the future. So what about the murky world of uncertainty that lies beyond … Read More

via Get “fit for randomness” [with Ontonix UK]

2 Responses to “Disaster myopia”: Failing to learn the lessons of increased uncertainty

  1. Bala Deshpande says:

    David – i am working on an article with a flash video on how entropy measurement quantifies uncertainty. I am sure you will enjoy it!

    Thanks for forwarding the article on mortgage supply chain!


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