Where would Philip Tetlock or Robert Armstrong forecast the next bank system-threatening crisis to appears

Sir, I refer to Robert Armstrong’s lunch with Philip Tetlock, ‘It doesn’t matter how smart you are’, July 9.

How I would have loved being at that table and be able to ask them:

Gentlemen, where do you think the next major bank crisis resulting from excessive exposures to something really bad is going to happen, between something that was perceived as safe when incorporated to bank’s balance sheets, or between something that was ex-ante perceived as risky?

And applying simple common sense, and looking at empirical evidence, I would absolutely forecast the first, that what’s perceived ex-ante as safe is, ex-post, the much riskier.

And I ask this because our current regulators, with their risk weighted capital requirements for banks, forecast that what is ex-ante perceived as risky, is ex-post, what is truly dangerous.

In my mind they never heard of Voltaire’s “May God defend me from my friends [AAA rated]: I can defend myself from my enemies [BB- rated]”

And the biggest problem now is that, though the regulators were clearly proven wrong in 2007-08, they do not admit their mistake and they keep on forecasting the same.

Sir, if artificial intelligence is to help us, we must keep it free of weak human egos.

@PerKurowski ©

What behavioral theory explains how hard it can be for even those who know it to understand?

Sir, Tim Harford discusses “base rate” and admonishes us:“It is easy to leap to conclusions about probability, but we should all form the habit of taking a step back instead. We should try to find out the base rate, or at least to guess what it might be. Without it, we’re building our analysis on empty foundations” “How to make good guesses” February 26.

So Mr. Harford: Clearly an asset that is evaluated as risky is normally expected to cause larger losses to a bank than an asset that is perceived as safe. But, what is the base rate for that a bank would create excessive exposures to what is ex ante perceived as risky? Is really what’s risky more dangerous to the bank system than what is perceived or has been deemed as safe? 

What sort of behaviorial explanation would Daniel Kahneman, Amos Tversky, Maya Bar-Hillel, Richard Nisbett, Eugene Borgida, Philip Tetlock and other experts give to the fact that a person like the Undercover Economist, even when in possession of the required knowledge, just cannot accept the fact that the pillar of our current bank regulations, the credit risk weighted capital requirements, is built upon a completely wrong foundation? 

@PerKurowski ©