by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
On my most recent plane trip I read a Harvard Business Review article by Amar Bhide that I have been meaning to read for some time. The article is titled “The Judgment Deficit” (HBR, September 2010, pp 44 - 53).
In this article, Bhide essentially points out that we have surrendered judgment to models and rule based thinking. While he points out that there are times and situations where rules or models are appropriate, they can never capture the complexity and value of human judgment. I wholeheartedly agree with him. The article points out deficiencies in having computer models make lending decisions as well as other examples from the banking sector, but the surrender of human judgment to models (and even worse - audits) is endemic throughout risk management – whether in the financial sector or not.
As Bhide argues, it is time to get back to basics and get back to using human judgment. A great judgment to start with is to read Amar Bhide’s article.
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