Much has been written about the ups and downs of financial
markets, from the lure of prosperity to the despair of crises. Yet
a more fundamental and pernicious source of uncertainty exists in
today's world: the traditional "insurance" risks of earthquakes,
storms, terrorist attacks, and other disasters. Insightfully
exploring these "acts of God and man," Michael R. Powers guides
readers through the methods available for identifying and measuring
such risks, financing their consequences, and forecasting their
future behavior within the limits of science.
A distinctive characteristic of earthquakes, hurricanes,
bombings, and other insurance risks is that they impact the values
of stocks, bonds, commodities, and other market-based financial
products, while remaining largely unaffected by or "aloof" from the
behavior of markets. Quantifying such risks given limited data is
difficult yet crucial for achieving the financing objectives of
insurance. Powers begins with a discussion of how risk impacts our
lives, health, and possessions and proceeds to introduce the
statistical techniques necessary for analyzing these uncertainties.
He then considers the experience of risk from the perspectives of
both policyholders and insurance companies, and compares their
The risks inherent in the private insurance industry lead
naturally to a discussion of the government's role as both market
regulator and potential "insurer of last resort." Following a
thoughtful and balanced analysis of these issues, Powers concludes
with an interdisciplinary investigation into the nature of
uncertainty, incorporating ideas from physics, philosophy, and game
theory to assess science's limitations in predicting the
ramifications of risk.
Subjects: Business, Finance
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