Risks of Scale

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pir8don
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Risks of Scale
Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions

 


Charles S. Tapiero
NYU-Poly Institute

Nassim Nicholas Taleb
NYU-Poly Institute

May 2, 2009

Abstract:     
Large institutions are disproportionately more fragile to Black Swans.

This paper establishes the case for a fallacy of economies of scale in large aggregate institutions. The problem of rogue trading is taken as a case example of hidden risks where rogue traders and losses are considered independently and dependently of the institution’s size. Both independent and dependent loss and hidden positions are shown to lead to the paper’s conclusion, that size and economies of scale have commensurate risks that mitigate the advantages of size.

 

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1398102

To read the full paper you will need to copy the above link then navigate to it and download the paper. Can't seem to embed the link successfully

Don

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Too big to fail, too big to fix, too big to care

 

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