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I recently tried watching Lex Fridman podcast with Tucker Carlson on Putin, Navalny, Trump, CIA, NSA, War, Politics & Freedom. I am not sure whether Tucker is IYI, corrupt or being contrarian for the sake of being contrarian at the cost of losing connect to reality but he certainly failed risk management 101. Normally, I wouldn’t care about Carlson, but executives that risk managers have to interact with every day use the same flawed arguments. Arguments that ignore risk management principles. So it is worth highlighting risk management failures using Tucker Carlson as an illustration. This article is not about Tucker Carlson, it is about risk management.
There is a war going on that is wrecking the US economy… ramifications are poverty in the US…
It is a plausible scenario. There is some probability that US support for Ukraine would escalate local economic problems and escalation of war will likely crush the US markets quite significantly. What Carlson, like many executives, forgets to mention is that this is just one of many scenarios. In my assessment, not a very likely one, but his assessment may be different and that’s fine. What is undeniable is that there are multiple plausible scenarios for Ukraine and US, both downside and upside. Again, in my assessment, upside scenarios of supporting Ukraine far outweigh the negative scenarios of supporting Ukraine. He may not agree. He could’ve explained why he believes this scenario is more likely than other scenarios, he didn’t. As risk managers we can’t take somebody’s word for it and have to triangulate and quantify the risk.
Ironically, if Carlson’s goal was to pick one bad scenario to be provocative, he didn’t even pick the worst one. The scenario he uses as his main base case is like p70 if we imagine potential losses from the war as a distribution. There are as many if not more bad scenarios for US if Ukraine is not supported and losses the territories. P90 must be Ukraine falling and Putin continuing to other nearby countries. Also super unlikely, but still.
Future is plural is my favourite saying. The whole purpose of risk management is to make these future scenarios transparent to executives. Such little trickery of choosing one particular scenario that fits your agenda and using it as a base case to build your arguments is something executives use quite often and something that destroys risk aware culture in organisations.
Navalny died… we don’t know what happened… do we know how he died? short answer is no…
Arguments like this are very common in the workplace and a huge red flag for risk management. Is Tucker Carlson lying in saying we don’t know what happened? Of course not, he is factually correct. Is his assessment useful for decision making, absolutely not. I wrote an article about this fundamental risk management failure Talking about risk is p95 and listening is p100, mismatch between risk team and executives. There are very few things in life that are 100% certain. Does that mean we should wait until full clarity to make a decision? Of course not. The whole purpose of risk management is making decisions under uncertainty.
Legal system in Russia has been corrupted over decades (there is a reason biggest Russian business conflicts are settled in UK courts and not in Russia), laws have been changed to fit the governing party, Navalny’s brother used as a hostage, Navalny had a Russian secret service kill squad tracking him, attempted murder and poisoning, Navalny returned and was immediately jailed under made up cause, Navalny was given multiple ridiculous sentences, Navalny multiple times moved to solitary to deny family visits, moved to remote jail to break up contacts with outside, 3 of his lawyers arrested under made up causes, Navalny denied attorney-client privilege, there were rumours of Navalny exchange and extradition to Germany. How likely is that Putin killed him given the above? It’s bloody probable. That’s Bayes’ theorem 101. Very very likely if you ask me. Could it be that he died from natural causes? There is such a scenario. Is it likely? Doesn’t look that way, he attended court the day before death and looked healthy, no prior history of heart problems and so on. Life is a game of probability.
So saying something shouldn’t be discussed because we are not 100% certain is a manipulation many executives use. And something risk managers need to be aware of. The less we know, the bigger the need for risk analysis, not the other way around.
US economy changed a lot in the last 15 years and we need to update our assumptions…
Ok, this is actually a good point. In my experience, the main responsibility of a risk manager in a company is to create a culture that constantly questions, challenges and updates assumptions when making decisions under uncertainty. Tucker Carlson then goes on talking about how Moscow turned out much better than his assumption after 2 years of sanctions, referencing architecture, goods in the shopping mall and metro cleanliness. This is a great example of risk management failure that I see in financial planning all the time. Whenever finance runs scenarios or sensitivity analysis they usually test different exchange rates, prices, maybe inflations and maybe couple other metrics. Why? Because these are the only assumptions that have been historically highlighted in financial models. Are they the most important risks and assumptions that should be tested? Sometimes. But more often than not, the most important assumptions are buried deep in the model, not transparent and rarely challenged. This is a huge risk management red flag.
Checking assumptions is important, but finding the right assumptions to check is even more important.
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