Risk management is a serious business. Accordingly, the production of a risk “measure” must be subjected to the question “how do you know what you claim to know” – in other words, epistemology. Claims regarding risk cannot be made without any rigorously established supervision of their validity. There is a need for skeptical inquiries concerning how a risk measure was obtained and how an opinion was formed. The fields of economics, finance, and insurance, in spite of their reliance on mathematics, have so far produced unreliable risk measures, particularly with the highly quantitative Modern Portfolio Theory. Very little check has been made on the theoretical and practical fitness of the assertions by the researchers and practitioners. Further, the discipline of statistics, with its confirmatory orientation, falls severely prey to the problem of induction – where proof of one level of probability is assumed to be proof of another.
Now, if the field of risk studies and quantitative risk management lacks adequate supervision, the field of mainstream epistemology itself provides no help for a decision maker under uncertainty (we tried!).
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