I had a very interesting conversation with a Risk Manager of a bank, my question was very simple… how did you not see the coming storm? quite frankly he was paid to think about it all the time. His answer was quite simple, Yes, he was paid to think about it and he did think about it and made sure every venue he got a chance to communicate it to the Management of the bank he DID. But the management just did not understand the consequences or take the possible actions based on his recommendation! Well, I don´t expect any other answer from him… but there is some meat in his argument. If I really don´t understand that I am standing on a rail and a freight train was going to run over me and the person warning me speaks Chinese or a language that I don’t understand… why would I move?
I think we underestimate the risks or miscalculate the payoff from risks, here is an article that talks about that and fallacies of Risk Management, which again I believe is an oxymoron. I think board of directors of companies should expect the management of companies to have a check list like the one airline pilots have before they fly. I don’t believe for one second that it would prevent a Black Swan event but it would at the least not be a surprise, actually if it is not a surprise then it cannot be a Black Swan event. I am contradicting myself… then again I am fallible