In 2012, Thinking Ahead published a paper with the title The wrong type of snow. It was a paper about risk, one of the most studied and written about subjects in our investment world.
We saw the parallel between trains that couldn’t run because it was the wrong type of snow and portfolios that didn’t perform because it was the wrong type of risk. Historically, risk was mostly considered at a point of time and looking backwards, not over time and looking forwards. Our paper argued for an intertemporal perspective – we defined risk mostly as impairment to mission, which necessarily involves a journey through time.
In our opinion the paper has aged well, and is still a good read. But we now feel we have something new to say about risk – hence ‘fresh snow’ as the title for this paper.
Andrea Caloisi, Researcher, Thinking Ahead Institute :
We have been pushing systemic risk, systems thinking and complex systems for years. What makes this paper stand out is that our ideas have now punchily spilled over into the investment practice – and inevitably so. This is our peak work on systems, including investment systems, with the commitment to stop treating the investment world as disconnected and isolated from the broader system we all live in.
As we have continued to learn about, and think about, systems, we have increasingly come to see current risk management practice within the investment industry as not paying enough attention to the bigger picture, the narrative along with the numbers, and the more distant future.
After a brief review of what risk is, we introduce the core idea of this paper – risk 1.0 and risk 2.0 are different because they are built on different (mental) models of reality. In Fresh snow we have considered the fresh hazards that we are facing in our risk journey, and the mindset shifts we must make.
In this paper we cover:
- Models of reality: risk 1.0 and risk 2.0
- Moving from risk 1.0 to risk 2.0
- The future of risk
- The past inadequacies of risk 1.0
- Potential problems viewed through two lenses
- Benefits of adopting risk 2.0 mindset and practice
Related pages
- Systems thinking – visit our hub
- Read: ‘The wrong type of snow’
