From risks to second-order dangers in financial markets: unintended consequences of risk management systems

Boris Holzer and Yuval Millo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The notion of risk is central to modern society, both as a productive and as a troublesome concept. On the one hand, risk refers to a situation of opportunity. Only those who undertake a risk, bear the uncertainties and face the potential adverse consequences, may gain the rewards. On the other hand, risk refers to fundamental uncertainty: at the time of risk-taking one cannot know for sure whether the opportunity concerned will be realised; in the worst case, the costs incurred might be greater than any benefit. Risk therefore increases the scope for both rational and seemingly irrational decisions: without the willingness to undertake a risk some opportunities may never be realised; the costs of an unsuccessful risky decision, however, may be intolerably high and may thus disqualify the whole enterprise in hindsight

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2004-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://eprints.lse.ac.uk/36101/ Open access version. (application/pdf)

Related works:
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:ehl:lserod:36101

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().