At Paco's urging, I am posting my commentary on Risk from Dreams, Bones & the Future: Queries & Speculations. Warning: it's a long read but pertinent to the times.

The pre-eminent work considering the history and dynamics of risk is Peter Bernstein’s 1996 book, Against the Gods: The Remarkable Story of Risk. Bernstein argues that “the revolutionary idea that defines the boundary between modern time and the past is the mastery of risk: the notion that the future is more than the whim of the gods and that men and women are not passive before nature.” The story is about the mathematicians whose work “put the future at the service of the present.” He writes, “by showing the world how to understand risk, measure it, and weigh its consequences, they converted risk-taking into one of the prime catalysts that drives modern Western society.” It was the prime factor that “converted the future from an enemy into an opportunity” and led the “human passion for games and wagering into economic growth, improved quality of life and technological progress.” Bernstein revels in the way that rational risk management has “propelled science and enterprise into the world of speed, power, instant communication and sophisticated finance.” Summing up, he argues that the giants who have led the way from “the perception of risk from chance of loss into opportunity for gain, from FATE and ORIGINAL DESIGN to sophisticated probability-based forecasts of the future, and from helplessness to choice.”

It would be hard to find a more optimistic assessment of the fruits of risk management and its prospects for the future.

With such unbounded optimism, it is strange that the cover of the book shows Rembrandt’s Christ in the Storm on the Sea of Galilee.[1] The image Rembrandt painted is based on the story in the Gospel of Mark where Christ intervenes and prevents the floundering vessel from crashing into the rocks. Are we to take from this that risk management is something like one of Christ’s miracles? Or, is risk management in some way to be considered from a religious perspective? Bernstein is silent on this and Christ was removed from the painting’s title in the description of the cover. Religion and faith are not considered in the text. This is because in Bernstein’s view as far as risk in relation to the future is concerned, mathematics has prevailed against superstition, against fortune telling and prophecy, and as the title suggests, against the gods themselves. The emphasis throughout is on the rational use of risk analysis. What could go wrong? Why then this religious image to be the cover of the book? [PM1] As I will argue further on, risk is always about the unknown future and the unknown future always animates the psyche in deep ways that are ignored when wearing the blinders of rationality that risk management has become.

In the 1990s, many institutions hired CROs (Chief Risk Officers), paid them handsomely, and raised their status. The idea was to reduce the risk of insolvency. Recent research shows that risky behavior on the part of financial institutions increased instead,[2] and led to the largest financial crash since the Great Depression. The reasons for this “failure” are hidden behind layers of secrecy. What the evidence points to however is that the presumed objective rationality of risk control and management will always be outweighed by emotional factors of self-interest, greed and fear at the highest levels.

I find it fascinating that Bernstein fails to mention emotion, fear or greed. Nor does he mention addiction or power or psychology. In other words, in the book that is as close to a Bible of Risk as one can get, there is no mention of the factors that drive human behavior when facing risk in the real world. This is something like pointing to the facts of arithmetic as to why it’s always rational to have a balanced checkbook. True, but hardly the determiner that it is always pictured to be.

Paradoxically, it appears that the use of risk management is impervious to the consequences of not actually following risk management rules. This is why Bernstein’s optimism about the future as the unfolding of unending bounty is wrong. It does not account for how humans behave in the real world. How else to explain not only the human contribution to climate change, but to the denial of climate change as well. It does not appear that the glories of risk management are going to save humans from their own suicidal processes of poisoning the planet, extinguishing vast arrays of living plants and animals, and staring their own extinction in the face. Ubiquitous and fatal risks have not been managed. They have been ignored.

The dark reality of the “progress” made possible by risk management is that the risk to human survival has never been greater.

The word risk, in its earliest spelling as risque, came into English in 1661 in this sentence: Risque, peril, jeopardy, danger, hazard, chance. The word comes from the French in the form of risqué, and from the Italian in the form of risicare. The sense of “impropriety” is clear in the French origin, while the sense of “to dare” is from the Italian. Bernstein sites only the Italian sense of “dare” as a stance that overcomes the “fates.” He ignores the origin that carries the sense of perhaps doing something “wrong.” Looking further back, we find the Latin word resecare, which was used to refer to the danger of ships being “cut” by unseen rocks beneath the surface. This is the scene that is pictured on the cover of Bernstein’s book. This word more clearly conveys the Indo-European root, sek I, which means “cut.” It is also the origin of our words sect, intersect, insect, and sex.

Suppose we ask the question of how risk management is to be applied to sects? To intersections? To insects? To sex? Here you can see that mathematical management via elaborated theories of probability, are not going to leap to mind. This is where the qualitative nature of risk is essential. Qualitative risk management is a well-known practice that is considered necessary prior to quantitative risk management. One develops a “registry of risks,” which is an attempt to anticipate everything of consequence that “could go wrong.” Even if such a registry of risks is developed, what happens in a typical scenario is that most such risks are discounted and risks remain that “qualify” for quantitative approaches are left to consider. This is what happens in all financial institutions when they discount all most all qualitative risks and focus in vary narrow ways on risks amenable to certain favored financial models. This is why such ventures will always lead to collapse.

Now we are in a situation where known risks are not just discounted but are denied altogether. You can just feel the ship floundering and edging closer and closer to the rocks that will cut the vessel and lead to its demise. This is why Melville’s Moby Dick is such a masterpiece of prophecy relevant to our current condition.

The theory of probability began its long ascent to the top of Mt. Rational in 1654, and provides the confidence that managing all risks is now possible. The word risk was introduced into English seven years later, in 1661. When I read prescriptions for risk management, I can’t help but be aware of that sentence: Risque, peril, jeopardy, danger, hazard, chance. This seems a more accurate picture of what we face and what we have failed to manage. Instead of focusing on how to manage the risks we face, it is far more urgent to ask ourselves why do we ignore our perils, why do we knowingly increase the jeopardy we are placing ourselves in, why do we ignore the dangers that we are seeing developing at exponential rates, why are we increasing the hazards to our very existence, why are we allowing ourselves almost no chance of a future. These are the qualitative areas we should be exploring front and center in our personal lives, our cultural lives and our global lives. There are no more important questions.

As I said earlier, risk and its presumed management are always about the unknown future. The unknown future will always excite the psyche at its deepest levels. One of the ways of attending to the deep psyche’s process, is to take up a deep recognition of the values of dreams. I have argued elsewhere that dreams are always about the future. It follows then, that when dreams are ignored, we are ignoring one of our richest resources in relating to the future—whatever the nature of that future will be. Like so many realities that get ignored that will bring us greater harm, we must realize, at some point, that ignoring our dreams may be the costliest mistake of all.

[1] This painting and twelve other paintings, 13 in all, were stolen from the Isabella Stewart Gardner Museum in Boston, on March 18, 1990. It is the largest art theft in US history and remains unsolved. Bernstein does not mention this event. 

[2] Kim Pernell, Jiwook Jung, Frank Dobbin. The Hazards of Expert Control: Chief Risk Offices and Risky Derivatives. American Sociological Review, 2017; 82(3). 511.