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Behavioural insights for improving the practice of risk management

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  • Shefrin, Hersh

Abstract

This paper explains the main concepts underlying the behavioural approach to risk management, and illustrates these concepts through a discussion of rogue trading in financial institutions. Incidents of rogue trading partly involve psychological issues associated with the traders themselves, and partly involve the risk cultures of the organisations in which the traders function. For this reason, issues are discussed from both a ground-level perspective and a bird’s-eye perspective. The ground level focuses on the psychological issues associated with individual rogue traders, while the bird’s-eye view provides a broader view of the risk environment in which rogue traders reside.

Suggested Citation

  • Shefrin, Hersh, 2016. "Behavioural insights for improving the practice of risk management," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 9(2), pages 112-119, March.
    • Handle: RePEc:aza:rmfi00:y:2016:v:9:i:2:p:112-119
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    Citations

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    Cited by:

    1. Matthias Pelster & Annette Hofmann & Nina Klocke & Sonja Warkulat, 2023. "Dark Triad Personality Traits and Selective Hedging," Journal of Business Ethics, Springer, vol. 182(1), pages 261-286, January.

    More about this item

    Keywords

    psychology; rogue trader; loss; aspiration; scapegoat; culture;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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