Plight of the Fortune Tellers

by Rebonato, Riccardo

• ISBN13: 9780691133614
• ISBN10: 0691133611
• Format: Hardcover
• Copyright: 2007-09-17
• Publisher: Princeton Univ Pr

Summary

Today's top financial-risk professionals have come to rely on ever-more sophisticated mathematics in their attempts to come to grips with financial risk. But this excessive reliance on quantitative precision is misleading--and it puts us all at risk. This is the case that Riccardo Rebonato makes inPlight of the Fortune Tellers--and coming from someone who is both an experienced market professional and an academic, this heresy is worth listening to. Rebonato forcefully argues that we must restore genuine decision making to our financial planning, and he shows us how to do it using probability, experimental psychology, and decision theory. This is the only way to effectively manage financial risk in a manner congruent with how human beings actually react to chance. Rebonato challenges us to rethink the standard wisdom about probability in financial-risk management. Risk managers have become obsessed with measuring risk and believe that these quantitative results bythemselvescan guide sound financial choices--but they can't. In this book, Rebonato offers a radical yet surprisingly commonsense solution, one that seeks to remind us that managing risk comes down to real people making decisions under uncertainty. Plight of the Fortune Tellersis not only a book for the decision makers of Wall Street, it's a must-read for anyone concerned about how today's financial markets are run. The stakes have never been higher--can you risk it?

Table of Contents

Preface	p. ix
Acknowledgments	p. xxvii
Why This Book Matters	p. 1
Thinking about Risk	p. 22
Thinking about Probabilities	p. 40
Making Choices	p. 67
What Is Risk Management For?	p. 107
VaR & Co: How It All Started	p. 117
Looking Beneath the Surface: Hidden Problems	p. 139
Which Type of Probability Matters in Risk Management?	p. 182
The Promise of Economic Capital	p. 199
What Can We Do Instead?	p. 223
Endnotes	p. 259
Index	p. 267
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