Complex Decision-Making in Economy and Finance

16Why Current Tools Are Inadequate

Why are we feeling powerless in the face of the current grand challenges affecting our planet and the sustainable environmental development of humanity? This chapter addresses the issue in the framework of complex systems.

16.1. On the shortcomings of current tools: risk and probability

In the following, we will limit ourselves to tools dedicated to describing a phenomenon, including quantitative and qualitative statistics, multivariate characterization, modeling and dynamic simulation of an event, etc.

Probability theory provides a rigorous mathematical framework for understanding the notion of risk and eventuality. In finance, as in industry, it is customary to base statistical studies on the normal distribution. We then describe a set of possible states of the world and then assign each state a weighting that describes the probability that this state will occur. However, in practice, the hypothesis of using conventional laws (Gauss, Poisson, exponential, etc.) is increasingly disputed. Several phenomena occur: the information is generally asymmetric; the frequency of major events such as natural disasters or earthquakes does not correspond with what can be predicted in distribution law tails… For example:

• – according to Philippe Henrotte [HEN 01, HEN 08], unlike games of chance, economics is a complex game where players’ expectations influence the odds of the next roll of the die;
• – according to Pierre Massotte [MAS 06], the distribution ...