Risk | EPFL Graph Search

In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is "effect of uncertainty on objectives". The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc). This article provides links to more detailed articles on these areas. The international standard for risk management, ISO 31000, provides principles and general guidelines on managing risks faced by organizations.

La négociation des risques technologiques

Marc Audétat

This thesis considers technological risks and their constitution as public problems. It supports that the main difference among risks is not to see between proved risks and uncertain risks, on the basis of the objective knowledge, but rather separates risks which have already reached compromises at both levels of evaluation and responsibility and those which are still controversial. The starting observation is that social acceptability of risk is out of the scope of the objective approach. Actors use categories of "objective risk" and "perception of risk" within struggles to define what is at stake. It shows how risks, as soon as their evaluation starts, are negotiated within controversies, mobilizing experts, stakeholders, and actors of society. With many environmental risk, and with the globalization of hazards such as climate change, the preventive paradigm is overflowed; and with the emergence of new uncertainties, such as the introduction of genetically modified organisms in agriculture and food, expertise as the only method to deal with risk is contested in society. The precautionary approach, which asks to act against uncertainty before the completion of scientific evidence of risk is declining in the United-States while its integration is increasing in public policy in Europe. Have we entered the risk society? Or, is the society of the developed countries safer than it has ever been? Are risk increasing or decreasing? These apparent paradoxes shows there is different social theories of risk with different possible balance between objective and social factors to explain them. The role of technology is ambivalent, generating new risk and in the same time privileged as a solution to uncertainty. The thesis puts forward "science, technology and society" approach in risk studies, and it aims at a sociology where experts are not considered neutral actors. In this perspective, robustness of expertise does not rely directly on objective knowledge, but on the relation of this knowledge with its context of application. After studying the role of risk in modernization and rationalization processes, the thesis focuses the mobilization of actors in risk controversies and the role of some new institutions in the public sphere such as the ethical committees and the technology assessment agencies. Two case studies are investigated which take place in Switzerland end of the 1990s. The first relates to the introduction of genetically modified organisms in agriculture and environment. A controversy occurred about field test, i.e. scientific experiments refused by the authorities in 1999 and 2001. The role of research in biotechnology is considered as well as the different role of expertise in the public sphere. Expertise in biosafety and social acceptability of biotechnology are negotiated simultaneously. The second case study is the climate change issue and the negotiation of measures to control greenhouse gas. The role of research policy in the governance of climate risk is studied. Both case studies are interested with the role of experts in the public sphere, with the coordination of expertise and decision making, and with the degree of democracy achieved in sociotechnical controversies. The main result of this study is that a linear model of risk dominates approaches and constitutes an obstacle to the democratization of technological change. Instead, the thesis proposes a model where rationality is not defined beforehand, but appears as the proper result of controversies. In this view, risks are socially negotiated, already during the production of expertise, and all along the decision making and the implementation processes.

EPFL2004

Technology Strategy in Dynamic Environments: A Computational Analysis of the Automation of Routines, the Organization of AI, and the Evaluation of Technology Risk

In this dissertation, I develop theory and evidence to argue that new technologies are central to how firms organize to create and capture value. I use computational methods such as reinforcement learning and probabilistic topic modeling to investigate three topics: the automation of routines, the organization of artificial intelligence (AI), and the evaluation of technology risk. Overall, I argue that new technologies are not a panacea for the firm but require deliberate strategic planning to manage the potential downsides of myopic automation, AI interdependencies, and the disclosure of technology risks.In the first essay, I argue that while automation can increase productivity by reducing the costs of coordinating individuals, the automation of routines can also incur an indirect opportunity cost due to slow adaptation to environmental change. I develop a reinforcement learning simulation to model the impact of automation on the returns from the division of labor in dynamic environments and to show how automation incurs opportunity costs through lost learning and slow adaptation. Moreover, automation can be suboptimal when it brings about myopic behavior, i.e. high returns from the division of labor in the short term, but negative returns in the long term. Given the simulation results, I argue that firms need dynamic routines to simultaneously balance learning and automation. I open-source the simulation platform as OrgSim-RL on GitHub.In the second essay, I argue that a data-driven culture - what I define as a Data Clan - can help to coordinate complex interdependencies between AI components within a firm. I analyze in-depth semi-structured interview data with a hierarchical stochastic block model (hSBM) and hand-coding to find that managers focus primarily on building a strong culture and establishing high-quality data assets when allocating resources to AI initiatives. Given the results, I inductively develop implications for theory and argue that the emergence of a Data Clan can be a governance mechanism to reduce coordination frictions and build a competitive advantage in the age of AI.In the third essay, I argue that investors require a higher initial return to take on more technology risk disclosure during an IPO. I quantify the magnitude of disclosed risk and the risk disclosure topics based on a latent Dirichlet allocation (LDA) topic model of IPO prospectus text and find a return-for-risk association between text-based technology risk disclosure and underpricing. The study also finds evidence that owning granted patents is associated with a lower return-for-risk association, suggesting that intellectual property allows the disclosure of risk without losing the competitive advantage. I open-source the code for quantifying risk disclosure as RiskyData-LDA on GitHub.In summary, this dissertation develops theory and finds evidence across three essays to argue that leveraging new technologies requires deliberate strategic planning to manage potential downsides of new technologies, such as the opportunity costs of automation, coordination costs, and costs associated with raising capital. The results suggest three mitigating solutions: dynamic routines to balance learning and automation, a Data Clan to improve coordination, and disclosure through patents to reduce underpricing.

EPFL2022

Three Essays in Banking and Finance

Damien Olivier Klossner

This thesis develops three models that study the motivation of various agents to take on debt, and the impact that excessive financial leverage can have on social welfare. In the chapter "Short-term Bank Leverage and the Value of Liquid Reserves", the incentive of a bank to take on leverage stems from the fact that its short-term debt provides liquidity benefits to depositors, at the cost of exposing the bank to the risk of runs. In the model, a bank possesses two instruments to manage the risk of runs: its funding policy and the size of its liquid asset holdings, modeled as government bonds. Issuing more debt allows the bank to better capture the liquidity benefits fits priced into deposits but increases illiquidity risk. Holding more bonds makes the bank more robust to withdrawals but it reduces the bank's asset returns. When the supply is scarce, banks are the natural buyers of government bonds. This links the liquidity premium priced into government bonds to the risk of bank runs. In the chapter "Liquidity, Debt Overhang, and Monetary Policy", firms take on bank credit to relax their liquidity constraint and purchase new capital. But taking on debt creates a debt overhang distortion which causes entrepreneurs to pass on protable projects. In the model, entrepreneurs arrange for their financing before they observe the profitability of their investment opportunity. After the latter becomes known, entrepreneurs are liquidity-constrained when investment conditions are favorable, and over-indebted when they are unfavorable. The monetary authority can generate welfare gains by lowering the cost of holding liquidity and, when debt is contracted in nominal terms, by pursuing a counter-cyclical monetary policy. In the chapter "Safe Claim Production and Capital Structure", firms issue debt to satisfy the demand of risk-averse investors for safe claims, at the cost of increasing default risk. In general equilibrium, firms need to be compensated for this service, which can only occur if their debt and equity claims are held and priced by different investor types. This segmentation of the investor base can be sufficient to prevent the existence of a symmetric equilibrium. Instead, only a fraction of firms opt for levered capital structures, and the gain in value obtained by tranching cash flows into debt and equity is offset by the expected cost of default. Changes in aggregate leverage can be divided into variations in extensive (the fraction of levered firms ) and intensive (the leverage ratio of levered firms ) margins. Changes in rm business risk have opposite effects on leverage, depending on whether the risk is of a systematic nature or firm-specific nature.

EPFL2019