Reassessing Risk

Wall Street failed spectacularly in managing it. A new approach is emerging: human judgment


Over the past two decades, wall street and the rest of the financial ecosystem became obsessed with the quantification of risk. Assigning numbers to the chance of something bad happening is a centuries-old endeavor--mortality tables have been used to devise insurance premiums since the 18th century. With modern computing power, though, financial engineers captured, packaged and sold risk exposure in startlingly new ways. Buying protection against a bad corn harvest or a spike in interest rates was just the beginning. Over time, as instruments became more complex, a huge shift occurred. Risk itself became the thing to trade--and to make money...

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