On the Value of Historians as Risk Managers?

One of the casualties of the recent crash has been the decline in the credibility of the “quant”. This may be no bad thing. Although I certainly do not advocate giving up on quantitative methods, which are here to stay in a world of derivatives, electronic trading and algorithmic trading, I do believe that other disciplines have much to add to the analysis and management of risk. For example, historians. I think of some of the recent work on the impacts of historical banking crises e.g., a lot of the work done by Kenneth Rogoff. Also I think historians offer a natural antidote to the abstractions of modern risk management. History is about specific outcomes, not about abstract concepts or distributions. History is messy and full of unintended consequences. It is about case studies rather than theory. It is accessible to managers who can project themselves into the characters of history. Good managers add value partly because (like grandparents) they have seen tail events before, and know where the nearest bolthole or watering hole might be found, Its interesting to note that historians rarely think about distributions or theoretical models when trying to hesitantly extrapolate into the future (even if they dare). If they do, they don’t base their assessments on recent events but instead long term cultural, demographic and geopolitical forces which might not move this market one way or another but do fundamentally shift the actors (usually governments and to a lesser extent corporations and markets) into one direction based on assessments of their own best interests. Maybe we should have corporate historians as non executive directors!