Boards of Prevention - Why Leaders on Boards Should Be More Active in Overseeing Risk - Michael Schrage

Corporate directors can – and should – play a much more active role in overseeing risk and avoiding major crises. In July 2007, as once-giddy financial markets began sensing that something might be horribly wrong, the top executive of the then-largest financial-services firm in the United States justified his bank’s “party hearty” attitude toward risk. “When the music stops, in terms of liquidity, things will be complicated,” Citigroup’s Chairman and CEO Charles Prince told the Financial Times. “But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

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Financing Risk and Bubbles of Innovation - Harvard Business School

Investors in risky startups who stage their investments face financing risk-that is, the risk that later—stage investors will not fund the startup, even if the fundamentals of the firm are still sound. We show that financing risk is part of a rational equilibrium where investors can flip from investing to not investing in certain sectors of the economy. We further demonstrate that financing risk has the greatest impact on firms with the most real option value. Hence, the mix of projects funded and type of investors who are active varies with the level of financing risk in the economy. We also highlight that some extremely novel technologies may in fact need "hot" financial markets to get through the initial period of diffusion. Our work underscores that financial markets may play a much larger and under-studied role in creating and magnifying bubbles of innovation in the real economy.

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Missing the Situation Leads to Optimism Among Powerful « The Situationist

Power leads to greater errors in forecasts, according to new research led by social psychologist Dr Mario Weick at the University of Kent. The research, to be published by the Journal of Experimental Social Psychology, shows that when people feel powerful they become more optimistic and less accurate in predicting the completion time of forthcoming tasks. The research examined for the first time the planning behaviour of powerful people and found that power drastically reduced the accuracy of forecasts with error rates soaring up to 70%. Dr Weick, a Research Fellow at the University’s School of Psychology, explained: ‘Time is a crucial factor in people’s everyday lives. Whether they are teachers, policy makers or engineers, people routinely plan their work and estimate the time it will take to accomplish tasks. Interestingly, people often underestimate the time it takes to accomplish tasks. This bias is known as the planning fallacy and derives from a too narrow focus on the envisaged goal. The more people focus on what they want

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Why Dirt and Risk Are Good

Within a single generation, our attitude towards children has gone from “go out and don’t come back until it’s dark” to gated children’s playgrounds, chauffeur driven play-dates and a list of officially decreed ‘dangers’ facing children. We have shifted from slugs and snails and puppy dogs tails to iPods, mobile phones and playstations in less than fifty years. You think I’m kidding? There is a DVD compilation of the best of Sesame Street (1969-1974) featuring a warning stating that the DVD is “For adult viewing only”. Why? Because it contains scenes now considered inappropriate for children. We are living in what is undoubtedly the safest time for children in recorded history, yet we protect our kids from germs, grazed knees and broken bones like never before. But what about ‘stranger danger’? Warwick Cairns, a researcher in the UK has calculated that one would have to leave a young child on a pavement for 600,000 years before it became statistically probable that the child would be abducted by a stranger.

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A Changing Culture of Creativity - Howard Gardner

A new culture of risk-aversion and crowd-sourcing is changing the traditional paradigm of the creative individual according to Howard Gardner, Professor of Education Harvard. Gardner conceived the notion of multiple intelligences and opposed the singularity of the IQ test in assessing intelligence.