6 February 2020
Paul Harwood, Member of the Risk Management Board, shares his thoughts.
I’ve always been fascinated with unexpected outcomes and structures that become unintentionally ironic. From five cats introduced to Marion Island to control mice (becoming a huge threat to the bird population) to Orwell’s Ministry of Truth, the counter-intuitive and simply perverse holds a slight fascination.
Tim Harford covered this in a talk to the Risk Conference. He cited a paper ‘No good deed goes unpunished’ in which risk mitigation measures – going back to the building of classical Rome – turned out to add new risk or exacerbate existing ones.
For example, I did not know that CDOs were originally seen as an insurance, a risk-reducing measure, and were supported as such by US regulators.
His book ‘Adapt: Why Success Always Starts with Failure’ summarises many such situations. However, the point of his book is not that these situations are inevitable, but that they allow us to understand the true nature of the risks that we face, and thus build better risk prevention as a result.
Tim’s 45 minute talk to the risk conference is available at https://learning.actuaries.org.uk/course/view.php?id=128§ion=5 as plenary 5.