Quantification and scientific analysis of the assumptions can lead to narrowing of the objectives and focus. Further, it can lead to an appeal to authority, instead of an appeal to observable facts. It will argue that ignoring the psychological aspects to risks evaluation can create a neurotic environment for risk management. The paper will argue that understanding the psychological process can help risk management obtain a more accessible, flexible, holistic view of risks. It will suggest ways to prevent and avoid overreach in quantifying risks.
The Fundamental Law of Risk Evaluation: recognizes the tendency for individuals, businesses and economies to gravitate towards risks that are underestimated/underemphasized and away from those that have been overestimated/overemphasized. These misallocations often create temporarily-distorted risk/reward feedback loops. Short term gains may reinforce faulty risk evaluation and (paradoxically) cause an increased commitment to the model. Moreover, preferential allocation of limited resources can create a strong disincentive to incorporating different ideas and adjusting methods of evaluation.
