Perspectives on risk management and behavioural finance

Abstract

The application of Behavioural Finance to Risk Management is still in its infancy and few models have evolved as to how to apply the theories and research findings to practical day-to-day risk management problems. In fact, the very topic of this Special Issue — Is there a role for Behavioural Finance in Risk Management? — is still a moot question. In addition to commissioning the papers in this issue, the editors asked a number of respected figures in the wider risk management community to provide their insights on the topic. In particular four thought-leaders were asked for their perspectives on two specific questions: (1) Should banks and regulators include the findings of psychological/behavioural research in their risk management frameworks; and (2) In the light of new UK legislation,1 should ‘reckless’ behaviour be regulated? The responses of these experts are enlightening, but as David Hillson notes the question is not whether behaviour should be considered in risk management ‘but how?’ Hopefully the perceptive answers will trigger debate among risk management professionals as to how the theories can be applied.