November 29, 2014

If only the Basel Committee for Banking Supervision had contracted an Abraham Wald.

Sir, Tim Harford’s recalls how the American statistician Abraham Wald when asked how to reinforce returning shot planes, advised to first figure out where those planes not returning had been shot, “ Learn from the losers”, November 29.

And Harford writes “It’s natural to look at life’s winners [but] if we don’t at life’s losers too, we may end up putting our time, money attention or even our armour plating in entirely the wrong place”.

Absolutely and had the Basel Committee for Banking Supervision contracted someone like Abraham Wald, they would have understood that banks did not really need to hold more equity for what was perceived as “risky” but, if anything, they needed to hold more of it for what was perceived as “absolutely safe”, because there were where the shots that brought them down usually hit.

PS. Reading this article I was also reminded of Benjamin Franklin’s beautifully counterintuitive but so correct saying of: “if you want something done, ask a busy person”.