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Behavioural insights for improving the practice of risk management


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This paper explains the main concepts underlying the behavioural approach to risk management, and illustrates these concepts through a discussion of rogue trading in financial institutions. Incidents of rogue trading partly involve psychological issues associated with the traders themselves, and partly involve the risk cultures of the organisations in which the traders function. For this reason, issues are discussed from both a ground-level perspective and a bird’s-eye perspective. The ground level focuses on the psychological issues associated with individual rogue traders, while the bird’s-eye view provides a broader view of the risk environment in which rogue traders reside.
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Keywords: aspiration; culture; loss; psychology; rogue trader; scapegoat

Document Type: Research Article

Publication date: March 1, 2016

More about this publication?
  • Journal of Risk Management in Financial Institutions is the essential professional and research journal for all those involved in the management of risk at retail and investment banks, investment managers, broker-dealers, hedge funds, exchanges, central banks, financial regulators and depositories, as well as service providers, advisers, researchers and academics. Guided by expert Editors and an eminent Editorial Board, each quarterly 100-page issue does not publish advertising but rather in-depth articles, reviews and applied research by leading professionals and researchers in the field on six key inter-related areas: strategic and business risk, financial risk, including traditional/exotic credit, market and liquidity risks, operational risk, regulatory and legal risks, systemic risk, and sovereign risk.

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