From FACING THE CONSEQUENCES:
Risk is about how we make decisions, and only incidentally about the math that we employ to reach those decisions. Knowing how it works is just the beginning. Knowing how to use these tools is the introduction to wisdom. And that is no easy task.
At its roots, risk is about mystery. It focuses on the unknown, for there would be no such thing as risk if everything were known. Pascal himself, the father of probability, touched the heart of the matter in his wager: God is or God is not. “Which way should we incline?” Pascal asks. And then he puts the clincher on the matter when he asks: “Reason cannot answer.” That is what life is all about: dealing with problems to which there is no certain solution and where any kind of rational decision is often impossible to define.
Today’s obsession with risk management focuses too intently on the instruments of the management and measurement of risk. The more we stare at the jumble of equations and models the more we lose sight of the mystery of life. All too often, reason cannot answer. Even the most brilliant of mathematical geniuses will never be able to tell us what the future holds. In the end, what matters is the quality of our decisions in the face of uncertainty.
The theme that I want to emphasize here is the dominance of decision-making over the analysis of probability. I am going to explore these matters from three points of view: Pascal’s Wager as the ideal model for making decisions, the impact of time on decisions, and an exploration into the sources of uncertainty, which lead us to philosophical and moral issues that illuminate the same theme.
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Related book: Against the Gods: The Remarkable Story of Risk
Related link: Peter L. Bernstein on risk
Related book: Against the Gods: The Remarkable Story of Risk
Related link: Peter L. Bernstein on risk