12.16.07

Risk models

Posted in exchanges, resilience_economics, risk, model error at 5:32 pm by kevindjones

People working on biocomplexity and resillience science are factoring in a method for including unlikely but extreme events (fat tails) in cost-benefit analyses, such as the uncertainty surrounding climate sensitivity. They are approaching it from a hard science perspective, and are getting it right, imho. By contrast, conventional financial risk models are under attack from a variety of sources, from Teleb’s Black Swan theory which began as more anecdotal than mathematical to the neglected but increasingly relevant idea by Benoit Mandelbrot that our fundamental risk model, using the bell curve, should be reconfigured as a power law, the kind of network pattern we see in everything from epidemic outbreaks to the growth of dominant sites on the internet. It’s good to see that Teleb and Mandelbrot are writing together. Social stock exchanges will need a new model of risk, since there are new, social values on the balance sheet for these companies.

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10.22.07

Inclusive wealth

Posted in exchanges, epistemology, bioinformatics, resilience_economics at 5:52 am by kevindjones

As we look to try to get a handle on the way value will be displayed and exchanged in the new exchanges, some analogues to the way people have learned to value things like ecosystem services might be interesting analogues. The Bejer Institute in Sweden has done some interesting research on the new kinds of accounting systems that will be required. And some of the economists looking at resilience economics have approaches that could also be helpful. The epistemology might take a few cues from bioinformatics as a way to humbly find what’s going in an extremely complex and dynamic system, where beliefs and habits, rather than biota, are changing. Mapping an evolving ecosystem of financial value and, because of observer bias, consciously trying to influence it. Yardstick influence.

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xchangexchange.com Blog

12.16.07

Risk models

10.22.07

Inclusive wealth

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