I am now reading the book Proofiness: The Dark Arts of Mathematical Deception by Charles Seife. It mines similar ground to the book Bad Science: Quacks, Hacks, and Big Pharma Flacks that I have previously written about. I can see that this book is going to be a goldmine of examples that is different from the goldmine of examples in the other book.
The nugget I just came across was in reading the Risky Business chapter.
Every few years, tremendous cases of risk mismanagement extract money from average citizens and put it into the hands of the wealthy. Whether it’s the savings and loan scandal or Enron or the subprime mortgage crisis, the end is always the same. The people who are willing to lie about risks make themselves very rich, and the taxpayer suffers the consequences. Even if one or two of the malefactors wind up in jail, there are always many more who make themselves much better off at others’ expense and never suffered any serious consequences.
In fact this chapter is almost a handbook on how to get rich with risk mismanagement. Having read this might make me a better investor, more able to recognize risk mismanagement when I see it. I urge every honest person to read this chapter and every dishonest person to stay away from it.
Wouldn’t it be paradise if this knowledge also made our government regulations more cognizant of this repeated pattern? Unlikely however, as the risk mismanagers have financial control of our politics where the laws to control this would have to be made.