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Practice paper

Improving finance and risk management foresight abilities: Growing past the ‘black swan’ mindset through integrative assessment

Guntram Fritz Albin Werther
Journal of Risk Management in Financial Institutions, 10 (4), 353-364 (2017)
https://doi.org/10.69554/LCIH7942

Abstract

Most professionals within finance and risk management, as in other professions, have sequentially failed to foresee and forecast large scale, large impact and rare events, as well as many more mundane real-world emergences. Often models and algorithms fail when most needed, as do most expert’s judgements. A common theme is that the world is complex and that therefore change within it is difficult — or as in the black swan mindset, impossible — to foresee and forecast. Either answer is not conducive to maintaining high career status and pay in the long run, especially when, as often happens, someone did ‘get it right’. This paper discusses several aspects of what doing better can look like for the majority of practitioners in finance and risk management professions — those who too often ‘missed it’. Particularly, it discusses what true integrative assessment within an iteratively holistic thinking mindset is. It discusses how integrative thinking differs from mere interdisciplinary or merely more networked thinking, and from modelling and other arithmetic approaches. Better models and arithmetic solutions alone cannot solve real-world foresight performance shortfalls because of a machine–human interface judgement problem. This paper will specifically address: Why are we doing badly? What can the finance and risk management professions do to build better forecasters? How does this apply specifically to financial institutions/risk managers? What should they do better or differently? How can education help develop better forecasters? What exactly is integrative thinking in the context of risk managers within a financial institution?

Keywords: foresight; forecasting; integrative analysis; holistic analysis; methods; financial crisis; finance; risk management; continuing education

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Author's Biography

Guntram Fritz Albin Werther is Professor, Fox School of Business, Temple University. He worked at the top of his field in five business disciplines. At top government levels, the program manager of the Office of The Director of National Intelligence Proteus Futures Program wrote: ‘I believe that he is the leading practitioner of holistically forecasting future trends’, and when featured at the Office of the Director of National Intelligence’s Intelligence Community Center for Academic Excellence, the Proteus’ Executive Director termed his work ‘unequaled’.

Citation

Werther, Guntram Fritz Albin (2017, October 1). Improving finance and risk management foresight abilities: Growing past the ‘black swan’ mindset through integrative assessment. In the Journal of Risk Management in Financial Institutions, Volume 10, Issue 4. https://doi.org/10.69554/LCIH7942.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 10 / Issue 4
© Henry Stewart
Publications LLP

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