Behavioural insights for improving the practice of risk management

Hersh Shefrin

Journal of Risk Management in Financial Institutions, 2016, vol. 9, issue 2, 112-119

Abstract: This paper explains the main concepts underlying the behavioural approach to risk management, and illustrates these concepts through a discussion of rogue trading in financial institutions. Incidents of rogue trading partly involve psychological issues associated with the traders themselves, and partly involve the risk cultures of the organisations in which the traders function. For this reason, issues are discussed from both a ground-level perspective and a bird’s-eye perspective. The ground level focuses on the psychological issues associated with individual rogue traders, while the bird’s-eye view provides a broader view of the risk environment in which rogue traders reside.

Keywords: psychology; rogue trader; loss; aspiration; scapegoat; culture (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2016:v:9:i:2:p:112-119

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