WEF is convening its annual session in Davos next week (24-26Jan), and have just put online their 2008 risk assessment report, which covers the topics that will be discussed at the various panels.
The report is very interesting, not least because of the 2nd appendix, which features a table of predicted risks and their likelihood and severity in numerical terms – a topic of central concern to my last two courses in intelligence analysis. Further, what I personally find rather fascinating is the emergence (sic) of a homogenized vocabulary to talk about what we label these days “new risks”. This vocabulary, stems entirely from subjects like complexity and network sciences, as well as some of the more metaphysical parts of physics and mathematics. Now, I’m no financial risk specialist, nor do I have any knowledge other than popular explanations of Physics and Math theories, but when I read a report, whose audience is primary in the finance sector, make repeated use of words such as emergence, uncertainty, aggregation, resilience, systemic finacial risk, interconnectedness, diffusion, complexity, “tail events”, etc., etc., a bell goes off in my ears. Is this current mania toward homogenuity, assimilation, the universal, and big picture telescopization not blinding us to what lies immediately before our eyes? I find something grotesque and almost cannibalistic in this process.
Nonetheless, the report is well worth reading, if not for its linguistic “anomalities” than for its forecasting methodology (complete with a fashionable SNA -social network analysis). This is not to say that I dislike WEF’s assessments. On the contrary, I find many of the observations and the parallels drawn between finacial risk evaluation and geopolitical risk assessment, as well as the discussions on food security, supply chains, and the role of energy, highly informative. In fact, I buy a large part of the arguments. I’m slightly surprised but pleased to read such humble conclusions (contrary to conventional wisdom, which looks at two aspects of risk – likelihood and severity and traditional prevention and mitigation measures of countering them) as acknowledgements that in the face of “new risks”, which are entirely unforseeable, such strategies fail.
It is refreshing to read a report produced mainly by financial analysts (notoriously conservative) that: “It may not make sense to attempt to eliminate risks which ultimately represent a source of opportunity as well as hazard. Rendering the global financial system as flexible and resilient (my emphasis) as possible by improving early indicators, enforcing more stress testing, enhancing understanding of tail risk and requiring better contigency planning may be more effective.
Ultimately, strategies to deal with systemic financial risk must reflect the fundamental shift in the global financial system to a market-driven model. There is considerable scope for increased public and private sector collaboration on stress testing, liquidity management, risk assessment and prevention.”
I welcome such initiatives from the private sector as I truly share their opinion in the value such collaborations can bring. The question is, has the public sector woken up to the idea that this might be its most viable strategy in fullfilling what its ultimate purpose is supposed to be: duty to its electorate?
I’ll be covering more news from the 3 day WEF session in Davos on my blog next week.
Filed under: Business Intelligence, Complexity, Forecasting, Risk | 3 Comments »