The Failure of Risk Management: Why It's Broken and How to Fix It by Douglas W. Hubbard

Author:Douglas W. Hubbard [Hubbard, Douglas W.]
Language: eng
Format: epub, pdf
Tags: General, Economics, Business & Economics, Decision-Making & Problem Solving, Corporate Finance, Risk Assessment & Management, Risk management, Business Mathematics, Insurance
ISBN: 9780470387955
Publisher: John Wiley and Sons
Published: 2009-04-14T04:00:00+00:00

Invalid scoring methods are developed in complete isolation from modern JDM research. Nothing in the scoring approach is designed to offset the known, measured human tendency to overconfidence and other biases.

Invalid scoring models are not tested against reality. No evidence exists where outputs of the model are compared to a large sample of actual outcomes (project failures, credit defaults, security breaches, etc.).

Brunswik and Dawes do not rely on human judgment alone for the inputs during the actual estimation effort—they are based on measurable units like cost or duration, some of which can be provided by objective measures. However, the invalid scoring methods attempt to elicit responses to vaguely defined concepts like ‘‘Rate the alignment with business strategy on a scale of 1 to 5.’’

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