Coates, Shull, other experts weigh in on risk professionals’ attention to their discipline

Thursday, May 02, 2013,

Risk Professional Magazine (published by the Global Association of Risk Professionals – GARP)

By Katherine Heires

Over the past 20 years, advances in brain imaging technology and other methods of analyzing neural activity have yielded important insights into the complex workings and biology of the human brain. It is a discipline, neuroscience, that is closely related to neuroeconomics, which over the last decade has combined knowledge about the brain with biology, physiology, psychology, behavioral finance and economic theory to enhance understanding of decision-making in competitive market environments where risks are taken and rewards earned.

GARP Neuroscience article

Neuroeconomics makes use of brain
imaging to inform economic theory.

To Colin Camerer, Robert Kirby Professor of Behavioral Finance and Economics at the California Institute of Technology, neuroeconomics involves opening up the “black box” of the brain to inform economic theory and potentially to better understand and mitigate risky behavior such as rogue trading. Consultant Denise Shull, president and founder of ReThink Group, a New York firm that advises professional traders, defines it as the study of “what happens in your brain when you are faced with risk and other decisions made under uncertainty.”

While making use of brain imaging, neuroeconomics also measures heart rate, blood pressure and facial expressions to assess physiological reactions. And it employs game-like tests and experiments to study decision-making, make inferences about the workings of the brain and build predictive models about human behavior.

These efforts, practitioners say, are designed to advance and enrich our thinking about economic theory, financial decision-making and public policy decisions.

The Art of Algorithmic War

A work in progress first presented at Battle of the Quants, NYC, April 24, 2013 and referenced in the above Global Association of Risk Professionals article by Katherine Heires.

…In short, brain science is revealing that our brains and ultimately our perception and judgment emerge from social, feeling and emotional factors. Our vast intellects are really only the icing on the cake. This paper reviews a subset of the science and lays out basic tools individuals and teams can use to better predict the unpredictable and to manage in times of disruption and chaos.