Risk Management For The Masses

1 Pages 320 Words

Risk Management for the Masses

Advances in technology have increased the likely outcome of both greater economic uncertainty and greater inequality. The good news is that the financial tools that will allow ordinary folk to cope with increased uncertainty, and to insure against adverse economic events, are already being developed.
Inequality has been on the rise due to changing technology, such as rapidly advancing communications, information and control technology, and its effects on an interdependent world economy. Advanced technology often means that a smaller number of skilled people supply their services over a wider area. Such changes stem from the very stuff of capitalism, undramatic events that unfold over many years.
Paradoxically, the same technology that is creating this inequality could also reduce it. Technology needs to be coupled with the science of risk management, which combines elements of finance and insurance to help deal with the possibility of adverse events.
Most of us do not think of inequality as a risk-management problem. However, if our purpose is to reduce gratuitous inequality, then we should reduce the random economic shocks that affect our lives. The most basic principle of finance and insurance is that spreading risks over large numbers of people can reduce their impact. The challenge today is to discover how to make this principle work for the greatest economic risks that most people face.
By coupling risk management with technology, society can much more thoroughly reduce the negative impact of future risks. The same information technology will allow us to produce large international markets for a complex array of aggregated risks that today are not traded at all. These international markets can be used by retailers of individual risk-management services to lay off the risks that they incur by helping individuals with their risks.
Today there are a few early indicators of innovati...