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Announcement: SOA releases July 2024 Exams FAM, FAM-L, and FAM-S passing candidate numbers.
Most financial services organizations have implemented an enterprise risk management (ERM) program. Though the specific ERM frameworks vary to a degree, they tend to concentrate more on technical methodology and spend less time focused on the biases and decision-making errors introduced by the participants. Most established risk frameworks assume that participant attitudes toward risk are relatively uniform and objective, and therefore predictable. However, empirical results from studies in behavioral economics contain several contradictions to this hypothesis. In fact, they show an individual’s risk perception can be influenced by a number of factors, and that thesefactors can produce unintended consequences on the risk information gathered and risk-based decision making. This emerging field is being more formally considered in ERM programs. In this session, we’ll first review common cognitive biases discovered by behavioral economics and the neuroscience driving them. We’ll then discuss core ERM activities and the cognitive biases that can be introduced. Finally, we’ll explore techniques used to mitigate these biases. Join us as we discuss case studies, including one focused on COVID-19’s impact on risk management behavior and suggestions for dealing with and reducing the resulting cognitive biases that have manifested from the pandemic.
Learning Outcomes:
Attend this session and you’ll:
· Learn common cognitive biases from behavioral economics and the science behind them.
· Understand which ERM activities introduce cognitive biases.
· Mitigate cognitive biases present in ERM processes.
· Evaluate risk information in a more objective manner, including during a stress scenario.
Track: Safeguarding Populations
1.20 SOA CPD
1.00 CIA