Same Thinking

 

*/By Rick Nason, PhD, CFA
Partner RSD Solutions Inc./*

Einstein once said that you cannot use the same thinking to solve a problem
as the thinking that caused the problem.  However, isn't that exactly what
we are doing with most of the regulatory frameworks around financial risk
management?  Yes, there will be those that argue that it has new ratios, new
definitions, different measures, etc. etc. etc.  But really – aren't
these really all more of the same, and aren't they really just more of the
same thinking?

Definitions

 

By Rick Nason, PhD, CFA
Partner RSD Solutions Inc.

Last week someone posted on one of the Linked-In groups the question, "What
is your definition of risk?"  The response this generated – actually the
debate it caused – was humorous, embarrassing and a lit bit depressing. 
What should be such a straightforward issue turned out to be anything but. 
Various commentators parsed, sliced and diced their favorite risk frameworks
and debated the fine and not so fine placement of commas and other irrelevant
factors.  Some argued for definitions that you needed a PhD in Philosophy to
decipher.  Needless to say, if a profession cannot define a term in its
title, then the profession itself might need a rethink.

For the record, my definition of risk – which I put forward in a previous
blog a couple of years ago is – "Risk is the possibility that bad or good
things may happen".  It may not be fancy, but at least you do not need a
PhD in Philosophy to understand it.