Chapter 2: Risk and Ambiguity: Entrepreneurial Research from the Perspective of Economics
Angela A. Stanton and Isabell M. Welpe We took risks. We knew we took them. Things have come out against us. We have no cause for complaint. Robert Falcon Scott, 1868–1912 INTRODUCTION As we are entering a new season of heated debates over the financial meltdown and try to point fingers to ‘who done it’, a key comment made in the Atlantic Magazine is apt to be shown here as one of the reasons why this chapter is of importance. Simon Johnson, professor at MIT Sloan School of Management and Chief Economist at the International Monetary Fund in 2007 and 2008, in his superb essay quotes Ben Bernanke saying in 2006 that ‘The management of market risk and credit risk has become increasingly sophisticated . . .. Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks’. Johnson continues: ‘To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible’ (Johnson, 2009, p. 50). Why are these sentences the introduction to this chapter? Both Bernanke and Johnson discuss ‘risks’ to be managed, controlled and modeled. But what they are really talking about are not risks but ambiguities. The differences are not semantics; they are referring to economic models that are not capable of modeling both risk and ambiguity. And this is one of the reasons for the...
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