Ideas from books, articles & podcasts.
Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of control.
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Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the next crisis.
Stress tests cannot be improved. History is a much better predictor than a stress test. But even history requires a model to interpret it.
We always have a preconception of cause and effect, and therefore some prejudice for how to interpret the data. That does not mean that we shoul...
The illusion of control can be adaptive, in the sense that it encourages a focus on problem-solving behaviors as opposed to an emotional response.
Producing your best-informed guesswork prevents the anticipation in stress testing. However, there will always be some things you cannot comple...
Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.
Encourage innovation in risk models to increase diversification and decrease risk.
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