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From risks to second-order dangers in financial markets: unintended consequences of risk management systems

Holzer, Boris and Millo, Yuval (2004) From risks to second-order dangers in financial markets: unintended consequences of risk management systems. CARR Discussion Papers, DP 29. Centre for Analysis of Risk and Regulation, London School of Economics and Political Science, London, UK. ISBN 0753017962

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Abstract

The notion of risk is central to modern society, both as a productive and as a troublesome concept. On the one hand, risk refers to a situation of opportunity. Only those who undertake a risk, bear the uncertainties and face the potential adverse consequences, may gain the rewards. On the other hand, risk refers to fundamental uncertainty: at the time of risk-taking one cannot know for sure whether the opportunity concerned will be realised; in the worst case, the costs incurred might be greater than any benefit. Risk therefore increases the scope for both rational and seemingly irrational decisions: without the willingness to undertake a risk some opportunities may never be realised; the costs of an unsuccessful risky decision, however, may be intolerably high and may thus disqualify the whole enterprise in hindsight

Item Type: Monograph (Discussion Paper)
Official URL: http://www.lse.ac.uk/CARR
Additional Information: © 2004 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
K Law > K Law (General)
Sets: Research centres and groups > Centre for Analysis of Risk and Regulation (CARR)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: DP 29
Date Deposited: 07 Jun 2011 16:33
URL: http://eprints.lse.ac.uk/36101/

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