International Law

Miscalculation and Confidence

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I am convinced that credit crisis will not end until the banking community gains comfort with radically new measures of risk.

"This financial crisis has shown that history is an unreliable guide for gauging future losses.

Banks relying on historical models were fooled when it came to potential mortgage hits.

They similarly miscalculated with structured-debt products. Now, the same may hold true for credit cards.

Banks and big card issuers have seen card losses climb and are projecting that things will worsen in 2009."

I don't think we will regain confidence by simply jettisoning the normal distribution as measure of chance or probability. 

Perhaps Taleb's new academic association with Dan Goldstein will bring about better risk heuristics.

Full post as published by Misleading Advertising Law on October 23, 2008 (boomark / email).