The Economist has an excellent section this week on risk. If you don't subscribe, pick it up at a bookstore as it is worth the read. Here is the free online article that heads the section.

For all the progress in using such tools, perhaps the biggest obstacle to dealing effectively with risk remains human beings' perceptions and misperceptions of it. People tend to get risk wrong in a variety of ways, often consistently. A growing awareness of this has been revolutionising economics. It has also been changing the way corporations, governments and citizens deal with the risks they face. This survey will argue that the largest gains will arise from coming to terms with this softer side of risk.

More and more of the world's risks these days are taken on in financial markets. Stockmarkets, which on one view are simply an estimate of the future rewards of all firms discounted by their risks, have become more volatile in recent years. This is partly because technology has made financial markets more efficient, which makes them swing more quickly as the economic outlook changes.

It is amazing to me how poorly we humans are at gauging risk. So many people tend to go by feeling instead of hard facts. This is in part due to mispercptions, which I have posted about before. Maybe I'll expand on this topic next week, as it is an area of serious interest to me.

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