Living in a Stochastic World and Managing Complex Risks

Michel Dacorogna and Marie Kratz ()
Additional contact information
Marie Kratz: ESSEC Business School, Postal: 3 avenue Bernard Hirsch, CS 50105 Cergy, 95021 Cergy Pontoise Cedex, FRANCE,, http://www.essec.edu

No WP1517, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: If there is a concept that has gained awareness during the financial crisis of 2008/2009, it is certainly the concept of risk and its consequence in risk management. The failure of many financial institutions to grasp the risks they were taking appeared so clearly and was so costly that the subject became central both with the regulators and more generally within society. Even though risk is an old concept, its perception has changed over the ages. In this century, the increase of wealth and the advances of scientific techniques may give the illusion to mankind that it has full power over Nature. People are either risk adverse or risk prone, without accepting its possible negative consequences, reactions that could be qualified as extreme and silly. Looking at it in a binary way does not help us cope with it. There is indeed little rational behavior when risk is concerned. Instead we should consider its right definition to be able to manage it. Already in the XVIII th century, philosophers came to realize that risk could contain two aspects as summarized by the French thinker Etienne Bonnot de Condillac (1714-1780) who qualified risk as " The chance of incurring a bad outcome, coupled, with the hope, if we escape it, to achieve a good one. " We see here the birth of a notion that will become prevalent in finance and economics during the XX th century.

Keywords: extreme risk; risk management (search for similar items in EconPapers)
JEL-codes: C51 C53 C73 D81 G17 G22 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2015-10
New Economics Papers: this item is included in nep-hpe and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://hal-essec.archives-ouvertes.fr/hal-01218056/document (application/pdf)

Related works:
Working Paper: Living in a Stochastic World and Managing Complex Risks (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:essewp:dr-15017

Access Statistics for this paper

More papers in ESSEC Working Papers from ESSEC Research Center, ESSEC Business School ESSEC Research Center, BP 105, 95021 Cergy, France. Contact information at EDIRC.
Bibliographic data for series maintained by Sophie Magnanou ().