About the book




  1. Probability versus Impact, Calculators versus Analysts
  2. Volatility, is it the same as Risk?
  3. What kinds of risks can be distinguished?
  4. What are ‘Known’ risks and ‘Known Unknown’ risks?
  5. Are ‘Unknown Unknowns’ quantifiable?
  6. Passive or active investing, what can be preferred?
  7. In the long term we are all dead
  8. Derivatives: impact insurance or 'weapons of mass destruction'?
  9. The big gamble, interest rate risk hedging
  10. Central bankers = central market disruptors?
  11. Are crashes foreseeable?
  12. Rating agencies, sharp judges of debtor risks?
  13. How do 'Noise' and 'Signal' play a role in risk management?
  14. Is external risk management as a 'Countervailing Power' desirable?
  15. Risk-based asset management is done like this!
  16. Risk models, do they have a proven track record?
  17. Stress tests and Scenario analyses, are they of any avail?


  1. Why do we underestimate risk?
  2. Rationality and gender, are they a stand in the way?
  3. Solidarity, altruism or selfishness
  4. Testosterone and risk, are they a pleasant couple?
  5. Just try to be normal!
  6. How tenacious is an investment analyst?
  7. Is 'Signal' recognized?
  8. Why do we use risk models?
  9. To Do or Not To Do, is that the question?
  10. 'Constant Factor', what is it good for?
  11. Information meetings for retirees
  12. Behavioral


  1. Principles-based or rules-based supervision?
  2. Central bankers are only human
  3. How does the Dutch supervisor regard the risk budget?
  4. Risk culture of insurers is copied by pension funds
  5. The judge, your best investment advisor
  6. Demolition is good for you!
  7. Fiduciary management: unbundling
  8. The bias of the 'home bias'
  9. Australian DC, does it work?
  10. Why did this pension ship suffered from shipwreck?
  11. How do we escape from the pension misery?


  1. What is ethical?
  2. Civilization is how people behave when no one is looking
  3. 'Moral' lässt sich formen
  4. Bonuses, so hard to quit!
  5. Ethics or 'Greed is Good '!
  6. Moral Hazard of banks and clients


Summary and recommendations





About the author




To control risks is the obsession of this time. For the financial sector managing risks is even a central element in all the doings. It is striking that this sector is frequently in trouble at this point. It is not just banks but also pension funds, building societies, construction companies and hospitals that are in difficulties. Every time the message is that too much risk was taken. There seems to be no learning process. A result is that confidence in various sectors and in politics, is being undermined. In fact this is remarkable, as well before the credit crisis every effort was made to control and manage risk. Why is there so little progress in this area? In the first part of this book I tackle this question and the concept of risk.


Times change, and the perception of risk changes with it. In the 17 century two-thirds of the Dutch East India sailors died during the trip to the East. We had a so-called 'VOC mentality', referring to the Dutch East India Company. This trading company, the first multinational corporation in the world, is seen as an enterprise with a strong business mentality, decisiveness and courage. The enormous risks of travel to the East Indies were known. It was taken for granted, being rewarded by fame and wealth. At the end of last century The Dutch had a somewhat equal outlook. Threats were called almost by definition opportunities. Defeatist reflections on risks, hazards, crises and uncontrollability were taboo. The Dutch collectively crossed the roads blindfolded. Entering the euro – by some scientists called a historic mistake – fits in the attitude overconfidence of that period. It is no coincidence that in that time financial engineering companies flourished, based on expectations of endless ascending rates. The sky was the limit.

The Netherlands have radically changed. The economy falters, the unemployment rose strongly and pessimism dominates. Gone is the excessive risk appetite, the Dutch East India Company mentality is far away. We ask ourselves how this could change so rapidly. We get an eye for economic behavior. There is a special branch of the economic science called 'behavioral finance', which reflects on how one can guard against emotional decisions that lead to sub-optimal solutions. There is a tendency to regard economics no longer purely as a mathematical science, but more like a behavioral science. For example, it is interesting to see how we get insight from multi disciplinary perspective in our behavior during bubbles and crashes. Much research is still too to be done which involves psychologists, philosophers, neurologists and economists. I explore ‘behavioral ' in the second part.


Several Dutch pension funds are under-funded. They report that the supervisor gives them insufficient room to move in order to get out of the thorny position. They are caught in a so-called 'Solvency Trap'. The challenge is to find a good way out. Healthy pension funds are of major importance for society. Therefore full advantage of the existing opportunities in the market should be taken and not to be suffocated by a regulator who restricts the funds too strongly. It became clear that the free market has not always worked well. It's a natural reflex to tighten the reigns of supervision. No mistake: regulation is necessary, but this should not be exaggerated. It's not only about more regulation, but more so to use it effectively. Politicians define the limits of the playing field. At the same time, regulators need to do more than just be the referee. In the third part I put the focus on supervision.


'Ethics' is described as a practical philosophy which deals with moral concepts and behaviors. It’s about what is good and evil. But, what is good and what is evil? Many philosophers have written about this subject. In the scope of this book I will not be able to give the ultimate answer. Ethics is not a static concept, but alters with culture. If we speak about risks within our social context, rules and supervision, then it also refers to ethics. There seems to be no end to all the scandals about money, risk and ethical awareness. Which risks shouldn’t be taken? What to do with bonuses? 'Greed Is good'? We seem no longer to know what our position should be in this respect. In the fourth part I put the focus on ethics.

Risk, Behavioral, Supervision and Ethics

In the epilogue I bring the lines together. Risk, behavioral, supervision and ethics are closely interlinked. It's like a huge puzzle that never is finished. Several pieces have yet to be made and to get a proper spot. On the basis of case studies, Q & A 's, I set up a bunch of issues. I don't pretend to be exhaustive about various topics that are raised.

Finally, this book is mainly about institutional asset management and is primarily suitable for directors and employees in the financial world who deal with risks, performances and profits. The text expresses only my personal opinion.

Frits Bosch

Amsterdam, Winter 2013