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Why do we repeat the same mistakes in finance? Are we hardwired to keep making the same mistakes? Why is it that the same factors, emotions and activities drive financial trading? How can we understand the underlying state of mind of the winners and losers in financial markets?

Banker, author, lecturer, international speaker on behavioural finance and banking consultant Gerald Ashley has an explanation and a solution to the global banking crisis that would be unwelcome to many.

For years we’ve been told reassuring tales of highly sophisticated risk managers skilled in the use of complex maths models driving a new financial revolution. They were generating new sources of spectacular profits whilst successfully keeping everything under control. Then the music stopped.

How can all the bank boffins have got it so wrong? There are two answers to this. First, too many were doing Risk Measurement rather than Risk Management. Second, many of the problems in banking cannot be solved through mathematical models of risk alone – uncertainties and “wicked problems” need far more subtle and fluid techniques such as those used in industries like Pharmaceuticals, Oil and Aerospace.

It turns out that a simple but fundamental error was a major part of the problem and is still at the core of the system: the bankers, mathematicians and financial model builders do not understand the difference between risk and uncertainty. This isn’t a simple matter of semantics: risk is entirely different from an uncertainty. In essence risks can be classified as events that have a high enough previous frequency to be accurately modelled, enabling fairly reasonable and accurate forecasts to be made about future outcomes. In contrast uncertainties are low-frequency events that simply don’t have enough back data to be properly modelled.

As with everything in finance these definitions are not new. The distinguished American economist Frank Knight first outlined them in a book published in 1921, but in the recent credit boom no one was reading books that were eighty years old!

Today some of the best work on uncertainty and “Wicked Problems” impacting global banking have their origins in the work of Professor Fritz Zwicky from the 1930s. He explained how to deal with “Wicked Problems”, and finance is certainly “wicked” now. Zwicky’s techniques have long been successfully used in the pharmaceuticals, oil and aerospace industries and are now more than ever they are appropriate to banking and finance.

The truly big questions in finance and risk taking are really quite simple:

- Why do we repeat the same mistakes in finance? Are we hardwired to keep making the same mistakes?
- Why is it that the same factors, emotions and activities drive financial trading?
- How can we understand the underlying state of mind of the winners and losers in financial markets?

Here then we are presented with both a puzzle and an opportunity - can we learn to study and understand the past and then profit in the future? Gerald Ashley provides new insight into the real drivers of financial markets. He looks at past masters of the art, examines modern thinking on finance and risk and assesses the value of experts, economists, chartists, market gurus and analysts. With simple but powerful examples he explains the basic tools of finance and how to profit in this often complex and unforgiving landscape.

Financial Speculation: Trading financial biases and behaviour - the new book from Gerald Ashley. Out now.

Simple labels, such as investing, gambling or speculation, won't help us grasp the underlying forces that drive the world’s financial markets.

It's far more important to understand the behaviour and biases of the players - their actions and motivations are the vital components that drive everything; bubbles, crashes, huge fortunes, reckless borrowing and complex instruments and strategies, all flow from this simple fact.

http://www.financialspeculation.co.uk:80/
http://www.financial-gurus.com/gurus/7059/Gerald-Ashley/

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Editorial contact:

John Norris
Moonlight Media
Email: john@moonlightmedia.co.uk
Tel: +44 (0) 20 7250 4770

This press release was distributed by ResponseSource Press Release Wire on behalf of Moonlight Media in the following categories: Personal Finance, Business & Finance, for more information visit https://pressreleasewire.responsesource.com/about.