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© 2016

Behavioral Risk Management

Managing the Psychology That Drives Decisions and Influences Operational Risk

  • Authors
Book

Table of contents

  1. Front Matter
    Pages i-xxi
  2. Hersh Shefrin
    Pages 1-15
  3. Part I

    1. Front Matter
      Pages 17-17
    2. Hersh Shefrin
      Pages 53-69
    3. Hersh Shefrin
      Pages 71-82
  4. Part II

    1. Front Matter
      Pages 83-83
    2. Hersh Shefrin
      Pages 85-103
    3. Hersh Shefrin
      Pages 141-155
    4. Hersh Shefrin
      Pages 157-171
    5. Hersh Shefrin
      Pages 191-209
    6. Hersh Shefrin
      Pages 211-228
    7. Hersh Shefrin
      Pages 229-247
    8. Hersh Shefrin
      Pages 249-266
    9. Hersh Shefrin
      Pages 267-279

About this book

Introduction

The psychological dimension of managing risk is of crucial importance, and its study has led to the identification of specific do's and don'ts. Those with an understanding of the psychology underlying risk and the skills to recognize its manifestation in practice, have the opportunity to develop frameworks that embody the do's and don'ts, thereby producing sound judgments and good decisions. Those lacking the understanding and the skills are destined to be more hit and miss in their approach to risk management, doing the don'ts and not doing the do's. Virtually every major risk management catastrophe in the last fifteen years has psychological pitfalls at its root. The list of catastrophes includes the 2008 bankruptcy of Lehman Brothers and subsequent global financial crisis, the 2010 explosion at BP's Macondo well in the Gulf of Mexico and the 2011 nuclear meltdown at the Fukushima Daiichi power plant.

A critical lesson from psychological studies for those involved in risk management is that people's judgments and decisions about risk vary with type of circumstance. In Behavioral Risk Management readers will learn that there are specific actions that organizations can undertake to incorporate understanding, recognition, and behavioral interventions into the practice of risk management. There are many examples throughout the book that illustrate doing the don'ts. The chapters in the first part of the book introduce the main ideas, and the chapters in the latter part provide insight into how to apply those ideas to the practical world in which risk managers operate.

Keywords

Banking Risk Management Psychology Crises banking business business finance corporate finance economics finance Fraud macroeconomics management organization Personal research

About the authors

Hersh Shefrin is the Mario L. Belotti Professor of Finance at Santa Clara University, USA. He is one of the pioneers in the behavioral approach to economics and finance. His book Beyond Greed and Fear provided the first comprehensive treatment of behavioral finance, and was written for practitioners as well as academics. In 2009, JP Morgan Chase placed it among the top ten books published since 2000. Among Shefrin's other books are A Behavioral Approach to Asset Pricing, Behavioral Corporate Finance, Ending the Management Illusion, and Behavioralizing Finance. Shefrin has spent his entire career studying risk from different angles. His work in mathematics has focused on Bayesian combinatorics. His work in economics has focused on uncertainty. His work in finance has focused on the psychology of risk. In addition to his experience as audit committee chair, his consulting work with large financial institutions has focused on behavioral risk management. He is currently teaching full-length professional development courses for executives in behavioral risk management at NYU and the Amsterdam Institute of Finance.

Bibliographic information

Industry Sectors
Engineering
Finance, Business & Banking

Reviews

“Behavioral Risk Management is a thought-provoking book that advances the behavioral finance literature by moving beyond the historical focus on asset pricing to examine operational risk within a number of institutions. The book effectively demonstrates that investment managers need to understand not only the quantitative tools, such as conditional value at risk, but also the psychology of risk management.” (Mark K. Bhasin, Financial Analysts Journal, Vol. 12 (1), 2017)