How to study "risk taking"
Hi everyone,
"One should learn to study risk taking" quoting N. Taleb here. Now I am not a fan of the man nor one of his detractors. This sentence made me curious.
I am still a student in MSc Finance and still in the application jungle to get an internship. It seems like most of these Hedge Funds/Market Makers/Prop trading houses try to assess "risk taking" behaviour in their interview processes through a bunch of techniques: brain teasers on probability and betting mathematics, market making games...
Now I find this interesting and would like to know from people in the industry, how can one "study risk taking"? Even from the perspective of somebody who is not yet in the industry. I come from an applied maths/stats background so I solve these quant brainteasers on a daily basis and I am exposed to risk management lectures in my Masters but again, is there something more that I can do to learn bold risk taking starting from now?
Thanks
Put real $ in an interactive brokers account and start trading your PA... look back at the trades you've made and think about what went right/wrong, if you sized correctly, timed correctly, etc... that is risk taking, not memorizing brainteasers from an interview guide
Fair enough, thank you.
Play poker
Yes, I thought someone was going to tell me this, I am learning the game. Thank you
You mention at the end "bold risk taking". No one said it needs to be bold. It needs to be thoughtful, probability-weighted, aware of your having "edge" or not, etc.
The best school is not a textbook, but putting real money on the line, even if small. The emotions you experience with real money involved cannot be replicated in a classroom.
literally every action taken by anyone with a probability of loss or some downside is an action with risk. This goes further than investing. The kid who goes abroad to study an expensive degree with low probability of employability is doing am action with risks.
so if you just want to understand market risk, just open any trade news/cases/biographies or talk with people whom you know about how they decide on taking action when there is risk
Play poker. When you think you have an edge, you should take risk. When you don't think you have an edge, you should reduce risk.
Basically it's this https://en.wikipedia.org/wiki/Decision_theory(the Math of the game)
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https://en.wikipedia.org/wiki/Social_psychology (The psychology of the crowd / complexity)
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https://en.wikipedia.org/wiki/Behaviorism (The psychology of you)
In order to solve this:
https://en.wikipedia.org/wiki/Computational_complexity_theory
You need to basically be able to understand the rules of the game, how to play it, how YOU play, how OTHERS play it collectively and how this all interacts.
The Objective of the game is Don't die (ruin), and get as big as you can (make all the money / control all the economic output).
The result of this is a computer (the market) which achieves the most efficient allocation of resources through available information given complexity.
Poker is offered as a good example of the above but really is a simulacrum of financial markets.
I'd recommend building a view on the 'sport' of it (reading about the above); while also practicing the sport (trying it yourself).
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