Over the past month the risk landscape has been dominated by the global financial crisis and I have been discouraged from venturing out of my depth onto the risk blog. But last night I was provoked by something I heard on BBC radio's daily news magazine PM. The excellent Eddie Mair interviewed John Barrass of the Association of Private Client Investment Managers and Stockbrokers, who said:

"markets themselves are morally completely neutral... inside the rules it's perfectly legitim [sic] fine to undertake the actions that you feel you can do"

Doesn't that sound pretty much like, "It's fine to do whatever you can get away with"?

Actually, I did feel a bit of sympathy for Mr Barrass. He was clearly nervous under Mr Mair's analytical-satirical spotlight, not to say embarassed by the behaviour of some of his peers. Mr Barrass did call for "transparency" whatever that might mean exactly. And he blamed the current crisis on an "excess of debt", which is certainly true up to a point. The crisis has not hit France as hard as the US and the UK. Not yet anyway. This is probably because the French have not gone so far down the road of spending money that they don't have. As for the assertion of the moral neutrality of financial markets, I'm not so sure.

Risk Perception

Many factors can affect a decision and different authors have their own preferred set of factors. A recent paper on medical risk listed the following factors as a summary of the current risk literature:

Common - Rare
Serious - Inconsequential
Immediate - Delayed
Involuntary - Voluntary
Non-essential - Essential
No control - Control
Novel - Familiar
Catastrophic - Everyday
Man-made - Natural

What seems to be conspicuous by its absence is

Wrong - Right

Of course, wrong and right are not black and white, but rather the end points of an ethical greyscale. However, all the other risk weighting factors in the list also apply over a continuous range. The moral dimension is often completely absent from the argument. I recently came across an online risk-aversion quiz that annoyed me. I don't mind being rated as risk-averse because I refuse to jump out of an aircraft but I object to the same risk-aversion rating because I don't cheat on my wife!

Ref: The above list of risk weighting factors comes from http://arthritis-research.com/content/10/1/R20