Risk All Around

There are some things you should know about before you even begin to discuss the article in the times about Value at Risk (VaR). The most important seems to be that the article wasn't written for the investment community and, because of that, I have read some criticism of it because it uses generalities in order to avoid losing its audience. I acutally liked the piece alot and think that its premise is a sound one: There simply is no way of converting hugely complex calculations into simplistic ideas for uneducated audiences.

It seems a reoccuring story in this crisis that people want simple answers to complex questions, even if there is a high likelihood that those answers are wrong. How else can you describe the carnage that is our economy at present? How many of these sophisticated (ie too complex for the average person to understand) investment tools which have imploded over the last year have relied on these inclinations to facilitate their risky behavior?

For some cirticism of the article you can look at this piece that astutely points out many the technical flaws with the NY Times piece's premise, but the post also regretably looses sight of the larger issues raised in the piece for the Times' larger audience.