What gives you the fantods?

The Fantods of Risk, Essays on Risk Management

Here’s our review of Felix Kloman’s new book, The Fantods of Risk, Essays on Risk Management.

The word fantod is an unusual word, especially coming from an expert on risk management. Felix Kloman has practiced the discipline and written authoritatively on the subject for many years.

The word, which refers to a mind in a state of restlessness, has an interesting literary history. It’s been associated with some … well, restless characters: for instance, Charles Dickens memorable Mr. Pickwick and Mark Twain’s Huckleberry Finn. Here’s how Huck uses the word in a comment about the impact of his Aunt’s “pictures” on him:
“These was all nice pictures, I reckon, but I didn’t somehow seem to take to them, because if ever I was down a little, they always give me the fantods.”

Huck was at unease about the practices of a civilized world, which he viewed through the lens of superstitions and his unconventional experiences.

The word fantod in the title of this book, then, serves to remind readers who think they know a lot about risk that they should never delude themselves about uncertainty. It is inappropriate to feel certainty in the face of uncertainty. It’s reasonable, however, that risk should give you the fantods!

This is not an admission that risk management has little value. It’s a statement of conviction that, when confronted with risk, a know-it-all attitude must never super-cede inquiry, curiosity, careful thinking, and even some humility.

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Trusted (risky) professionals

Timely risk management

To reduce risk, expand your awareness of the risks and what’s happening in your jurisdiction

Bravado and confidence, admirable in some fields, can be disastrous if unchecked in high-risk professionals

In the past few months we’ve been reading about the public inquiry into Dr. Charles Smith, the Ontario pathologist whose questionable testimony led to wrongful convictions, and the financial scandal generated when French trader Jerome Kerviel evaded bank controls leading to the loss of 4.9 billion euros at Societe Generale SA.

The Dr. Smith case is particularly disturbing. Smith was a forensic child pathologist with no training in forensics – none was required or available in Canada when he rose to prominence. In frequent testimony as an expert witness, Smith, by his own admission, supported the prosecution in disregard of his obligation to provide balanced, objective testimony. Smith’s poor practices and mistakes, many of which date back to the early ’90s, resulted in wrongful imprisonment and financial and emotional devastation for several Ontario families.

Through the lens of risk management

The Smith (and Kerviel) examples illustrate how we are underestimating risk and using inadequate controls. Continue reading

Personal conduct–what’s the harm?

Head in brief case

What was he thinking! If it offends your mother, your family, your constituents, or your professional colleagues, don’t do it!


When senior officials or professionals behave contrary to society’s mores or expectations, they undermine the reputations of their office or profession as well as themselves.

Look no further than the top news story of the week, and this week it’s all about New York Governor, Eliot Spitzer. His professional reputation is in shreds, a reputation built as as N.Y. Attorney General and as a crusader against corporate wrong doing. In the parlance of a regulatory client, his behaviour is DDU (disgraceful, disgusting, unprofessional). Based on reports, the Governor used the services of a prostitution ring, repeatedly. What was he thinking? What damage has he done to the reputation of the institutions he leads?

There are character requirements for public office and professions. Some of these are embedded in law and others are implicit in society’s expectations. The intangibles – trust and confidence – make a difference to whether people will accept leadership, use services or take advice. Plus shocking news stories divert public attention from the business at hand.

The impact is real and the likelihood of human misbehaviour, it seems, is pretty high.

Prediction markets update

“Why Prediction Markets Beat Political Polls” is a headline on the cover of the March 2008 issue of Scientific American. The headline is a bit misleading because why or how prediction markets work is not all that clear. However, the fact that they outperform polls, based on the evidence of the Iowa Electronic Markets (IEM), is indisputable: The IEM example covering U.S. Federal elections between 1988 and 2004 demonstrates that markets beat polls 3 times out of 4. This is as true on the day of the election as it is 100 days in advance.

The basic distinction between polling and a prediction market, using the example of an election poll, is that the poll takes a representative sample to find out how the group is going to vote. Prediction markets allow a diverse group of people to predict (or bet) who’s going to win.

With risk-based regulation, there are times when the consequences of a wrong decision are high enough that a best guess isn’t good enough. Prediction markets, or information markets, as they are sometimes called, present a technique of tapping into the “wisdom of the crowds” to get a better reading. New types of markets can be developed to assist in regulatory decision making. Already, prediction markets have proven themselves in diverse areas such as disease forecasting, Hollywood box office success, and economic and financial forecasts.

More information

Information Markets: A New Way of Making Decisions. This document captures the proceedings of a 2004 regulatory conference about information markets. The conference was hosted by the “Reg-Markets Center,” officially the AEI Center for Regulatory and Market Studies (formerly known as the AEI-Brookings Joint Center).

Our review of Wisdom of the Crowds by James Suroweicki.

Ethics and drug-trial recruitment by health professionals

Ethics and drug-trial recruitment

A recent article in The New Yorker by Carl Elliott, a professor at the Centre for Bioethics at the University of Minnesota, asks questions about the ethics of recruiting healthy and cash-hungry “guinea pigs” to support the drug testing economy. In recent years, pharmaceutical companies have moved drug trials to the private sector where more than seventy percent are now conducted. There’s a lot of money on the table (thousands of dollars per subject) for recruitment and the potential to attract health professionals to participate in an area of questionable ethics. Specifically, Elliot discusses the situation of Frank Abuzzahab, a de-licensed physician in the U.S who now operates as a psychopharmacology researcher. He lost his licence through disciplinary action: he was deemed to be responsible for the injuries or deaths of forty-six patients under his care who he recruited for drug trials.

Health professionals are in a position of authority when dealing with clients, or even the public. Their codes of ethics place the interests of the client ahead of their own.

What’s your view on the ethics of this situation? Is it appropriate for doctors, nurses or other health professionals to do some moonlighting on the side like this or not?

Who knows more about risk?

The Wisdom of the CrowdsIn important matters of uncertainty involving predictions we need to hear from a diverse group of people that have different perspectives, and perhaps a stake in the decision that causes them to think before offering their views.

Collectively, the diverse group is smarter than individuals. This is the core message of The Wisdom of the Crowds by James Surowiecki.

Surowiecki provides a framework with examples of when and how the knowledge of the crowd can impact decisions positively.

This idea applies well to regulation. Why? Because regulators are generally a step or two removed from the uncertainties they need to know about. First-hand knowledge about these risks reside with the regulated parties.

As well, the sources of uncertainty in most jurisdictions are dispersed and mostly invisible until they are brought to the attention of the regulator. The collective knowledge of constituents (regulatees and individuals who are affected by what regulatees do) is far greater than the regulator. Effective new methods for capturing this knowledge will improve regulatory oversight.

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Risk defines who we are

A brain section are from  René Descartes.Cogito ergo sum. (I think, therefore I am) This famous quotation and the drawing of a brain section are from René Descartes.


If you have an image in your mind that risk management is a negative subject, always focused on bad things, you need to read Mumsipus Revisited by Felix Kloman and experience the humanity of the man who believes that “taking risk is the defining element of human existence.”

Kloman’s update on Descartes’ famous quotation is “perilitor ergo sum,” I risk, therefore I am. Life with no risk would be sterile and dull. It’s a cliché to say that risk and reward go hand in hand. It’s ironic, then, that the common perception about risk management omits the positive aspect to focus only on the negative. Kloman argues persuasively that risk management addresses both situations.

Mumsimus Revisited The essays in this book are from a 15 -year period since 1974 during which Kloman was editor of the newsletter, Risk Management Reports. You can order a copy from Seawrack Press.
The essays offer many thoughtful insights about the nature of risk and the discipline that has grown up around it.
The essays are organized by themes (chapters)– a few of which are noted here:

  • History of risk management
  • Issues in risk management (including a discussion of broad public policy issues)
  • Risk communication: difficulties in this area and why it’s so important
  • Insurance (Kloman is a critic of the industry that provides a tool for “sharing risk.” His views may be of interest to insurance regulators, and other regulators who oversee specific-purpose “captive” insurance plans)
  • Catastrophes, the ultimate challenge for risk managers and regulators.

Kloman’s authority as a commentator stems from the perspective, independence, clarity of thought and humanity he brings to every essay. He’s been an practitioner and respected commentator throughout the development of the risk management profession: it’s a young profession; He reads widely and shares his sources; He loves good writing and his writing reflects the obvious care that he takes; And, his passion for risk management reflects his values and conviction that this discipline can improve outcomes for society.
It’s worth reading just to discover what he considers to be valuable. In the risk literature field, Peter Berstein’s book Against the Gods: The Remarkable Story of Risk is but one example.

The title of the book, Mumpsimus Revisited, makes reference to the story of a monk whose erroneous use of latin in the Mass was of little matter to him.The story is a reminder that we need to revisit our assumptions, especially as they relate to risk.