The Illusion of Control
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Why Financial Crises Happen, and What We Can (and Can’t) Do About It
Jon Danielsson
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Format: HardcoverPrice: $30.00
A challenge to the conventional wisdom surrounding financial risk, providing insight into why easy solutions to control the financial system are doomed to fail
Finance plays a key role in the prosperity of the modern world—but it also brings grave dangers. We seek to manage those threats with a vast array of sophisticated mathematical tools and techniques of financial risk management. Too often, though, we fail to address the greatest risk—the peril posed by our own behavior.
Jón Daníelsson argues that critical risk is generated from within, through the interactions of individuals and perpetuated by their beliefs, objectives, abilities, and prejudices. He asserts that the widespread belief that risk originates outside the financial system frustrates our ability to measure and manage it, and the likely consequences of new regulations will help alleviate small-scale risks but, perversely, encourage excessive risk taking. Daníelsson uses lessons from past and recent crises to show that diversity is the best way to safeguard our financial system.
Jón Daníelsson is a professor of finance and the director of the Systemic Risk Centre at the London School of Economics. He is the author of Financial Risk Forecasting and Global Financial Systems: Stability and Risk.
"In The Illusion of Control, he [Jon Danielsson] argues that putting central banks in charge of financial stability is an error because they face “a complex, ill-defined policy domain for which there is no clear consensus on either the problem or the objective”. So, the enterprise is doomed to fail. Separate agencies, with more direct political accountability, are needed for that task."—Sir Howard Davies, The Guardian
Publication Date: June 28, 2022
45 b/w illus.
