Behavioral Risk Management
Managing the Psychology That Drives Decisions and Influences Operational Risk
By Hersh Shefrin
15th December US, 12th January UK
$75 | £47 | Hardback | 9781137445605
Risk managers are now acutely aware of the role human psychology played in financial decisions
that preceded the global financial crisis of a few years ago. This is the first book for practitioners looking to leverage behavioral concepts to improve judgments and decisions involving risk within organizations, in the hopes of preventing another crash.
In Behavioral Risk Management, behavioural economics and finance pioneer Hersh Shefrin recommends original psychological models for implementing effective risk management strategies, providing insights that will help risk managers develop their own strategies to maximize profits. Shefrin argues that the psychological dimension of managing risk is of crucial importance, making the difference between sound judgements and good decisions, and a more ‘hit and miss’ approach to risk management.
Shefrin aims to show that virtually every major risk management catastrophe in the last 15 years has psychological pitfalls at its root. The catastrophes he covers include the 2008 bankruptcy of Lehman Brothers and subsequent global financial crisis, the 2010 explosion at BP's Macondo well in the Gulf of Mexico, and the 2011 nuclear meltdown at the Fukushima Daiichi power plant.
Shefrin points out that a critical lesson from psychological studies for those involved in risk management is that people's judgments and decisions about risk vary with type of circumstance. Behavioral Risk Management shows that there are specific actions that organizations can undertake to incorporate understanding, recognition, and behavioral interventions into the practice of risk management, and offers practical advice for making this a reality.
'This book provides a complete understanding of why behavioral components have to be included in risk management. Drawing from the major disasters, Shefrin provides a thorough analysis of the psychological components which led to such outcomes. Without any overconfidence bias, this is a mustread for anyone involved in operational risk management.'
—Catherine Lubochinsky, Professor, University of Paris II
‘Behavioral Risk Management is an accessible, insightful, and necessary work for anyone who is involved in the pursuit of value creation. Hersh Shefrin has managed to combine an examination of the research into the psychology of risk with specific applications and examples of its impact on real life situations. Like Luca Celati's The Dark Side of Risk Management, Shefrin's work brings important issues to the forefront that are unknown to most risk managers. This is book is essential reading.’
—David R. Koenig, Founding Principal, The Governance Fund
About the Author
Hersh Shefrin is the Mario L. Belotti Professor of Finance at Santa Clara University, USA. He is one of the pioneers in the behavioral approach to economics and finance. His book Beyond Greed and Fear provided the first comprehensive treatment of behavioral finance, and was written for practitioners as well as academics. In 2009, JP Morgan Chase placed it among the top ten books published since 2000.
Among Shefrin's other books are A Behavioral Approach to Asset Pricing, Behavioral Corporate Finance, Ending the Management Illusion, and Behavioralizing Finance. Shefrin has spent his entire career studying risk from different angles. His work in mathematics has focused on Bayesian combinatorics. His work in economics has focused on uncertainty. His work in finance has focused on the psychology of risk. In addition to his experience as audit committee chair, his consulting work with large financial institutions has focused on behavioral risk management. He is currently teaching full-length professional development courses for executives in behavioral risk management at NYU and the Amsterdam Institute of Finance.
For more information on the book or to get in touch with the authors please contact:
+44 0207 014 6634