Averaging Risk is Risking the Average

Regulators must assess risk in many different areas. Banking has been top of mind in the past years, but industries like Pharma and Utilities also had a lot of attention. How a regulator decides to measure and asses risk is very important. If risks are underestimated, this could impact society (like a banking crisis, deaths due to the admission of unsafe drugs or increase of injuries due to pipeline failures). If risks are overestimated costly mitigation might be imposed, again impacting society with high costs.” A monetised risk approach that estimates risk with averages is insufficient as it ignores important extreme values. What is a better way of aggregating uncertainties and risks than just averaging them? Read more in this interesting article by John Poppelaars.

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