The fluctuating nature of risk management models

Abstract

This study discusses the credibility of using a fragmented approach to constructing risk management models. Current risk management models are based on the fragmentation approach which views inputs into the deterministic models as a single set of basic constituents, flowing through a model as a unit that spreads predictably throughout the whole process of predicting a particular perceived risk facing an entity. In most cases deterministic models are constructed based on the concept of measurement that is based on the measurement of structures having a natural concatenation that is representable by a sum and a weighted average. That is, current risk management models quantify social scientific phenomena through extensive measurement. However, studies in measurement indicate that extensive measurement has limited applications in social sciences due to the inadequate interpretation of the concatenation operation. This means that risk management models should be an insight into risk not an absolute truth to the notion that a specific risk is constituted of basic building blocks all working together towards its particular measurable absolute quantity. This study highlights that social scientific phenomena are not identifiable in terms of absolute truths but have properties that are in flux. For this reason, risk could be conditioned by other properties that the risk management model has not taken into account when measuring it. Hence, this study proposes a risk management perspective in terms of the universal flux of economic events and processes that move away from fixed measures of risk and towards a risk concept formulated in terms of multi-valued logics.