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The author discusses the prospects and challenges of bringing risks under control in the new millennium. They start by emphasizing the idea that nature has established patterns, but only for the most part. This qualification is key because without it, everything would be predictable and there would be no risk or change in life. The author points out that despite the efforts of many brilliant thinkers throughout history, much of the mystery surrounding risk and uncertainty remains unsolved. Discontinuities, irregularities, and volatilities seem to be increasing rather than diminishing, making risk management more complex. The author believes that the goal of wresting society from the mercy of chance continues to elude us, and they explore the reasons why this is the case.

The author notes that historical figures like Leibniz and Einstein believed in an underlying order to the world, but they also recognized the complexity of nature and the limitations of human knowledge. Leibniz acknowledged that there was an invisible element to nature’s patterns, while Einstein believed in complete law and order in an objectively existing world. However, the author argues that human beings must contend with the behavior of something beyond the patterns of nature: themselves. The decisions and behaviors of individuals have a significant impact on society and the world, and this growing interdependence has not been adequately addressed by previous thinkers until the 20th century.

The author highlights the significance of Knight and Keynes, who introduced a new notion of uncertainty that was rooted in the irrationalities of human nature. This notion of uncertainty goes beyond the natural patterns and focuses on human behavior and decision-making. The author argues that the analysis of decision and choice can no longer be limited to isolated environments, and instead, we must consider the impact of individual decisions on others. From Knight and Keynes, the author traces the development of behavioral investigations and the examination of the failure of invariance.

The author acknowledges the achievements of the heroes of risk management throughout history in shaping progress over the past 450 years. They emphasize that decisions that affect everyone’s life are now made based on disciplined procedures and quantitative models that outperform the seat-of-the-pants methods of the past. However, they also caution that the science of risk management can create new risks, and our faith in risk management can encourage us to take more risks than we otherwise would. The author raises the question of whether it is possible to program into computer models concepts that are beyond our imagination or access data about the future that is inaccessible to us. They argue that reliance on historical data can be limited by the fact that it represents a sequence of events rather than a set of independent observations.

The author also discusses new approaches to risk management, such as chaos theory, genetic algorithms, and neural networks. Chaos theory rejects conventional theories of probability and assumes that results are not proportionate to the cause. However, the author argues that chaos theory has not yet provided solid evidence that today’s signals will trigger tomorrow’s events. Genetic algorithms and neural networks aim to predict outcomes based on patterns and experiences, but their efficacy in forecasting the future is still uncertain.

Overall, the author concludes that while risk management has made significant progress over the years, there are still challenges and mysteries surrounding risk and uncertainty. The nature of human behavior and decision-making adds complexity to the understanding and management of risk. The author emphasizes the importance of both quantitative models and human judgment in risk management, while also acknowledging the limitations and uncertainties inherent in the field.

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