How many significant digits on your car’s speedometer?
Regulatory regimes require companies to waste huge amounts of money on useless precision of risk evaluation.
Mine only shows the numbers every 20 and has markers for gradations of 5. So the people who make cars think that it is sufficient accuracy to drive a car that the driver know the speed of the car within 5.
And for the sorts of things that one usually needs to do while driving, that seems fine to me. I do not recall ever even wondering what my speed is to the nearest .0001.
That is because I never need to make any decisions that require the more precise value.
What about your economic capital model? Do you make decisions that require an answer to the nearest million? Or nearest thousand, or nearest 1? How much time and effort goes into getting the accuracy that you do not use?
What causes the answer to vary from one time you run your model to another? Riskviews tries to think of…
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