Behind AIG’s Fall, Risk Models Failed to Pass Real-World Test.
You Don’t Say! Our subtitle is the title of today’s Wall Street Journal front-page article about AIG (obviously).
As always we’ll point interested readers to our essay, Uncertainty Management, which emphasizes the broader notion of unmeasurable uncertainty over the narrower notion of (measurable) risk, and therefore permits really bad things to happen.
We mean bad things outside the scope of someone’s purely mathematical model, which, as an abstraction of reality, may ignore imaginable and unimaginable bad things. … Read the rest
