Professor Graciela Chichilnisky has chosen to discuss Optimal Statistical Decisions by Morris H DeGroot on FiveBooks as one of the top five on her subject - Risk Management, saying that:



“…Yes, that book is essentially the mathematical foundation on which Posner’s book is based on. If you read this excellent book you can see why is it that we dismiss catastrophic risks, as Posner finds. DeGroot’s book lays out the whole mathematical foundations of Posner’s theory. And for me this was very interesting because I was able to trace directly the roots, the source of the problem. Why do we dismiss catastrophic risks in the conventional statistical analysis that is widely used today, even in US Congress? I was able to trace it to one axiom which comes out of DeGroot which has no real reason for its existence but we accept it because it makes mathematics simpler. Lo and behold, this axiom is the cause of our dismissal of catastrophic risks and the enormous losses that we could have avoided and we didn’t rely on it. It is called SP4.



For example, if we had not used DeGroot’s approach prior to the financial crisis, if instead of weighing down the results of the crisis and dividing by a hundred…things could have been better. We could have taken action. Reading these books together I started to realise why this is not the right approach. These two books fit together and they helped me pinpoint where the traditional theory went wrong and what had to be changed. …”



The full interview is available here: http://fivebooks.com/interviews/graciela-chichilnisky ( )