Crippling Epistemology

Google the term crippled epistemology and you get lots of articles and blog posts about extremists and fanatics and also some blog posts BY the extremists and fanatics.

Crippled epistemology means that someone cannot see the truth.

Daniel Patrick  Moynahan is reported as saying “Everyone is entitled to his own opinion, but not his own facts.”

But there are just too many facts.  Any one person cannot attend to ALL of the facts.  They must filter the facts, choose the facts that are more important.  We all filter the facts that we pay attention to.

But sometimes, those filters become too strong.  Things went along in a certain pattern for a length of time, so we filtered out of our consideration many of those things that either failed to evidence any variability or that had totally predictable variability.

Those filters take on the aspect of a crippling epistemology.  Our approach to knowledge keeps us from understanding what is actually happening.

Sounds pretty esoteric.  But in fact it is one of the most important issues in risk management.

We need to have systems that work on a real time basis to provide the information that drives our risk decisions.  But we must be careful that that expensive and impressive risk information system does not actually obscure the information that we really need.

For the investors in sub prime mortgages prior to 2007, they had developed an epistemology, an approach to their knowledge of the markets.  Ultimately that epistemology crippled them, because it did not allow them to see the real underlying weakness to that market.

So a very important step to be performed periodically for risk managers is an Epistemology Review.  Making sure that the risk systems actually are capturing the needed information about the risks of the firm.

Explore posts in the same categories: Assumptions, Financial Crisis, Risk, Risk Learning


You can comment below, or link to this permanent URL from your own site.

3 Comments on “Crippling Epistemology”

  1. […] Crippling Epistemology (July 2010)  Be careful that that expensive and impressive risk information system do not actually obscure the information needed to make risk decisions. […]

  2. riskviews Says:

    Yes, we do need to have a reliable process for this. Considering how much NOT having a reliable process has cost everyone, it is amazing that no one is calling for this.

  3. jpberliet Says:

    This is very good and most important! In earlier days, I thought of this as being “awake”, rather than asleep at the switch. I believe that you are onto something important, and that awake is not enough. we need an additional degree of engagement and a process to follow through.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: