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Nassim Taleb: “Let’s Not Be Turkeys”

black swan

In today’s keynote luncheon at RIMS 2010, Nassim Nicholas Taleb, best-selling author of The Black Swan, told the story of a turkey who is fed by the farmer every morning for 1,000 days. Eventually the turkey comes to expect that every visit from the farmer means more good food. After all, that’s all that has ever happened so the turkey figures that’s all that can and will ever happen. But then Day 1,001 arrives. It’s two days before Thanksgiving and when the farmer shows up, he is not bearing food, but an ax. The turkey learns very quickly that its expectations were catastrophically off the mark. And now Mr. Turkey is dinner.

Taleb’s advice: “Let’s not be turkeys.”

The lesson of our doomed turkey illustrates the central problem of unexpected, “black swan” events (or in this case “black turkey,” I guess). We simply do not have enough data to reach empirical conclusions about how a risk will manifest itself and to what degree. “Just because you never died before, doesn’t make you immortal,” said Taleb.

Part of the issue is in the semantics of how we talk about risk. We have created what Taleb called “an illusion of measurement.” By saying, we can “measure” the risk in a particular situation, we are implying that there is a definitive answer. “We should not be using the word ‘measuring,'” he said. “We should be using the word ‘estimating.'” It’s a psychological difference that allows us to gauge “riskiness” more appropriately.

Taleb pointed out that the issue is magnified by the increased complexities and interdependencies of today’s society. There is a greater potential for the unexpected in a society characterized by extreme randomness and connected in ways that it never has been before. You would only have to compare how a theoretical run on a bank would happen today as opposed to 50 years ago. Once upon a time, if you wanted to pull your money out of your bank after learning of its imminent failure, you would have to physically go to the bank, likely stand on line, and possibly even change your mind after being forced to wait half the day. Now you can get the news on your Blackberry, log into your bank and automatically withdraw the cash in seconds. And so can everyone other bank customer around the world. Voila. Instant crisis.

The situation may not be  encouraging, but Taleb put his faith in good risk management. “Unfortunately, we live in a world that doesn’t understand risks,” he said. “Hopefully, risk managers would run society and not bankers.”

They certainly couldn’t do any worse.

RIMS Canada Can Throw a Party!

Being at the RIMS Annual Conference, you are faced with many tough decisions — like which event to attend after the Exhibit Hall closes for the day.

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Last night we were lucky enough to make it to the RIMS Canada reception and as the headline says, the great white north knows how to throw a party.

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Along with air hockey, delicious food and Canadian mounties, there was great music and frivolity.

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For your viewing enjoyment, a few pics:

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RIMS in Pictures

They say a picture is worth a thousand words. If that’s true, here are 10,000 words on Tuesday at RIMS 2010.

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RIMS President & Director Terry Fleming and RIMS Executive Director Mary Roth cut the RIMS 60th anniversary cake.

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Former RIMS President Joseph Restoule and RIMS Members Services Associate Shavonne Howlett pick the raffle winner of a new Kindle.

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Talking about global programs at Tuesday’s Exhibit Hall Lunch & Learn roundtable discussion.

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Chatting after the keynote.

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Enjoying a session.

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Everybody loves their Bermuda bags.

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Team photo shoot.

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Getting rich in National Underwriter’s Money Machine.

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Working the Exhibit Hall.

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Working the Exhibit Hall part two.

The Risks of Social Media: Pseudonyms on the Internet

One of the coolest things about working from the press room at the RIMS Annual Conference is the ample amount of press releases available to journalists and other media professionals. Various companies in the risk and insurance industry are eager to spread the news of their new surveys, studies or products, and it shows — I’m currently looking at tables filled with Chubb, FM Global, AIR Worldwide, etc.

One study from Chubb that caught my eye stated that many don’t use their real name on the internet. In fact, the study says only 51% always use their real name.

I questioned why this would be of any concern and I was met with a great quote.

“Twitter, Facebook and Foursquare have created new social media risks and an environment where many people don’t know who they are talking to online,” said Kenneth Goldstein, worldwide media liability manager at Chubb. “They don’t realize who can see their location, creating many exposures for individuals and companies.”

Some interesting stats from the study:

  • 66% of respondents said they would not use mobile technology that shows people on social networking sites where they are located
  • 20% of respondents said they have shared a negative product or service experience with others on Facebook, YouTube or other social networking sites
  • 64% of respondents said the company had no policy for talking about the company on social networking sites

This is just another aspect of social media risks that we continue to write about (check out past posts on the topic). And of course, check back later for more posts from RIMS 2010.