RMI 2302 MID-TERM 2 FINAL

Flashcard maker : Lily Taylor
risk/reward
Individuals
Measured using expected utility
How much reward is necessary to induce you to take risk?
Similarly, how much are you willing to pay to avoid risk? This is actually the entire basis of insurance, people willing to pay to avoid riskOrganizations
Orgs. use expected value, not expected utility
No natural risk aversion
Opportunity cost or cost of capital
Most organizations project future cash flows from investments/opportunities
Discount those cash flows back to present value based on cost of capital
Cost of capital is commensurate with riskiness of firm

Gov’t/Society
Measuring reward to society is difficult (reward of national parks?)
Many times government is the only entity able to take on risk, regardless of reward

Risk/Reward
Organizations
CAPM
Only reward systemic risk
Not diversifiable risk
Efficient frontier
Bias
What is a bias?
Subjective view/probability – different from objective
Many sources
Alter the decision making
Problem when it ends up being significantly different from the model
Types of Bias
Age biases
Cultural biases
Experience biases
Gender biases
Media biases
Incentives
Now that we know how people make decisions, how do we get them to make decisions that are advantageous to us?
Incentives! Things that motivate individuals to perform an action.
Incentives can be at the individual level, organizational level, or societal level
Generally we refer to incentive structures
Types of Incentives
Financial – Most incentives
Moral – “do the right thing”
Natural – “curiosity, fear, anger, pain, joy, pursuit of happiness”
Coercive – negative reinforcement
Personal vs. socialPolitical Incentives
short term vs. long term planning
Discount rate

Which of the following actions describes a way organizations use expected value?
Organizations estimate the future cash flows that are generated by an investment and then discount them back to present value.
Age biases occur when people in different age groups interpret information about risk differently.
True, Age biases occur when people in different age groups interpret information about risk differently.
Which part of Secretary of State Donald Rumsfeld’s quote poses the most threat to analyzing and creating decision-making models?
“unknown unknowns”
A(n) _______ is an inclination of temperaments or outlook to present or hold a partial persepctive at the expense of (possibly equally valid) alternatives in reference to objects, people, or groups.
bias
Individuals and organizations measure risk/return with expected utility.
False, Expected utility is used for individuals, while expected value is used for organizations.
Sue is a very bright college student who stays up to date on all the news channels. In response to the number of child abductions she has seen on the news lately, she insists that her mother purchase a child harness for her younger brother. What type of bias is this?
Media, Sue has a fear that is overestimated based on media attention.
Lots of ways (categories) of looking at risk at the individual level
Property
Liability
Life
Health
Financial
Loss Exposures
Loss Exposures
Any condition or situation that presents a possibility of loss, regardless of whether that loss actually occurs.
Three Elements to a loss exposure
Asset exposed to loss
Cause of loss
Financial consequences of the loss
Property
Asset exposed to loss
Real property
Land, buildings, crops, etc…
Personal property
Your stuff: furniture, jewelry, art, autos, watercraft, etc…
Cause of Loss
Fire, theft, windstorm, accidents, lost, pretty much anything you can think of
Financial Consequences
Reduction in property value
Increased expenses
Lost income
Liability
Asset exposed to loss
Money / other financial assets
General, Special, Punitive damages
Cause of Loss
Claim / lawsuit
Civil law vs. criminal law
Tort, contract, statutory
negligence
Financial Consequences
Defense costs
Monetary damages
Specific Types of Liability
Property owners
Automobiles
Employer-employee
Parents and children
Animals
Life – Premature Death
Asset exposed to loss
Your life
Cause of Loss
Premature death: illness, accident, stupidity
Financial Consequences
See next slide
Financial Impact of Premature Death
Wage earning adult:
Married
Single with dependents
Single with no dependents
Non-wage earning adult:
Married
Single with dependents
Single with no dependents
Child
Life – Long Life
Asset exposed to loss
Your savings / retirement / wealth
Cause of Loss
Outliving assets, expenses > income for too long
Financial Consequences
What happens when retired?
Income
Expenses
Which increase
Which decrease
Health
Asset exposed to loss
Your health, livelihood
Cause of Loss
Poor care, poor genes, bad luck, injury, illness, etc…
Financial Consequences
Ability to earn income may decrease, or cease (as in premature death)
Living expenses may continue (or increase)
Evaluate same exposure categories as premature death
Health / Disability
Asset exposed to loss
Your health, livelihood
Cause of Loss
Poor care, poor genes, bad luck, injury, illness, etc…
Financial Consequences
Ability to earn income may decrease, or cease (as in premature death)
Living expenses may continue (or increase)
Evaluate same exposure categories as premature death
Financial
Asset exposed to loss
Your wealth
Cause of Loss
Health, disability, unemployment, poor planning, etc…
Financial Consequences
Inadequate savings
Back to work
Can’t retire
Individual Risk Management
Risk Management Process
Determine Objectives
Identify Risks
Evaluate Risks
Choose your alternatives
Implement
Review ; Evaluate
What are the risks?
What are the risks?
Change throughout life e.g. premature death
20’s – not many people relying on you/your income
30’s – family life changing – significant risk
40’s – your grown up (and don’t even know it) – highest this risk will ever be
50’s – risk beginning to diminish
60’s – not as big an issue
70’s – not an issue
??? – not an issueHow do you evaluate
Frequency / severity
Death only happens once, but probability does vary
Severity does vary based on
Wealth
Income

Smart Pill
What is the risk?
Insomnia, weight loss, decreased appetite, jitteriness
Increased risk of cardiovascular problems
Exacerbate depression, psychosis, anxiety
1-in-400 in doctor managed patients
Potentially addictive
10% according to 2006 study
Decreased performance over time (due to insomnia, addiction, malnutrition?)
Paranoia, aggression, irritability
What is the reward?
Improved performance on learning tasks such as memorization, especially for longer term memory (more than one day) & since education now seems to be a competitive sport…
Need to be on drug while studying, not when taking exam
Not clear you can remember more stuff at one time (working memory)
Who is using it ?
You are…
Prescription use doubled from 2007 to 2011
Studies estimate 25-35% of college students have used Ritalin, Adderall off-prescription
3-4% of population are ADHD, skewed toward younger children (many of you, if you had it, have outgrown it)
Users are also more likely to:
Smoke marijuana
Skip class
Lower GPAs
YES
Yes, they are dangerous
Alan Schwarz
Case on Richard Fee
Academic scholarship, college class president, baseball player, aspiring med school student
Addiction to Adderall – committed suicide 2 years after collegePoints out problems in health care system:
Quick diagnosis
Ability to manipulate/feign symptoms
Quick to medicate
Doctor shopping

Not sure how all pharmaceuticals interact

No
Joshua Gowin
No different than other stimulants, e.g. caffeine
Just more sophisticated
They work, so use them

The financial consequences of property risks include:

I. reduction in property value

II. increases in expenses

III. lost salary

I and II only

reduction in property value and increased expenses are financial consequences. Lost income from rental properties may also be a financial consequence, not lost salary.

In defense of “smart” pills, Joshua Gowin frequently compares them to what other cognitive enhancer?
caffeine
According to Alan Schwarz in “Is the Use of ‘Smart’ Pills for Cognitive Enhancement Dangerous?”, false prescriptions of ADHD medicine is on the rise. Which of the following is not listed as being one of the dangers of false prescription?
Answers:
a. strong addiction
b. suicide/suicidal thoughts
c. increased mental awareness
d. loss of weightCorrect. Increased mental awareness.

Which of the following is NOT one of the five main catogories of risk faced by individuals?
a. Property
b. Liability
c. Reputational
d. HealthCorrect answer c. Reputational

Alan Schwarz’s attack on “smart” pills centers around the story of _____________, a college class president and aspiring medical student who became addicted to the “smart” pill he was improperly prescribed.
Richard Fee
Overview of Risk for Corporations
Lots of ways (categories) of looking at risk at the organization level
Business risk, operational risk, hazard risk, financial risk, strategic risk
Why categorize?
Expertise, risk management techniques, reports to stakeholders
Categories may not be mutually exclusive (some risks may appear in multiple categories)
Business risk
Investopedia does a better job than Wikipedia on this definition
http://www.investopedia.com/terms/b/businessrisk.asp
Deviations in profitability
Can be caused by many things, prices, regulation, competition, etc…
Very broad category, many will define as risk caused by operational, hazard, financial or strategic risks
Operational Risk
Focus of BP case and Analytics readings
Wikipedia is pretty good here
http://en.wikipedia.org/wiki/Operational_risk
Potential losses from internal sources
Manufacturing processes
Fraud
Mismanagement
Employee mistakes
Hazard Risk
Very traditional risk management stuff
Wikipedia not very good here (very personnel safety focused)
Typically used in insurance industry to describe potential losses that only have a down side (pure risks), e.g. fire, auto accident, tornado, earthquake, etc…
Financial Risk
Potential variation due to financial causes
Wikipedia is better than investopedia here
http://en.wikipedia.org/wiki/Financial_risk
Losses due to exchange rate, investment losses, credit risks, liquidity risks, etc…
Strategic Risks
Potential losses (variation) from poor business decisions
Product mix
Supplier choice
Financing options
Many decisions fall under “strategy”, if any of them are wrong/faulty =; strategic risk
I often lump reputational risk under strategic risk, but is often a separate classification
Plenty of other categories
Legal risks
Liability risks
IT risks
Etc…
All have an impact on business some how some way
BP
Case Study
BP around 2 safety issues in 2005-2006
Overriding Themes of Case
Corporate Strategy
Public Relations
Corporate Culture
Workplace Safety
Process Management
Two Specific Incidents
March 25, 2005
Explosion at Texas City refinery
15 dead
170 injuredMarch 2006
Oil Spill at Prudhue Bay, Alaska (Alaskan North Slope)

Jan. 2007
CEO Browne Resigns

Background
BP formed in 1998
Merger of British Petroleum ; AMOCO
Top 5 Global Oil Co.
British Petroleum
Over 100 years old
Browne became CEO in 1995
Rebranding
Environmentally friendly oil company
Health, Safety, ; Environmental (HSE) performance
Growth through M;A
Green Company – Climate Change talk in 2002
Alternative Fuels
Solar
Public Relations Perspective
Increase in brand value
Many lauded BP’s approach
Some critics
“greenwashing”
How can an oil company be “green”?
cont.
Corporate Strategy Perspective
Growth through M&A
“Do more with less”?
Cost cutting?
Cost conscious?
What effect does Corporate Strategy have on Corporate Culture? Workplace Safety? Process Management?
1st event
March 23, 2005
Explosion @ Texas City Refinery
15 dead
170 injured
1,700 lawsuits
Was safety first
OSHA
$21.3M fine by OSHA
300 willful violations of OSHA rules
US Chemical Safety & Hazard Investigation Board (CSB)
BP endangered workers to cut costs
23 accidents in 30 years
8 “severe” incidents in 10 years leading up to explosionCSB Report Con’t:
“Lack of safety leadership”
“inadequate resources for safety”
“independent panel to review safety”
BP response
“we may not have broken laws, but broke our values”
Baker report – not finished until Jan. 2007

Second Event
March 2006
Leak discovered in Prudhoe Bay, Alaska
Largest US oilfield (Alaska North Slope)
267K gallons, largest spill in this oilfield
Comparison Exxon Valdez approx. 30M gallons
Comparison Deepwater Horizon 210M gallons
Corroded pipe
BP response – shut down oil fields
8% drop in US oil production
16 of 22 miles of pipe needed to be replaced
was safety firstt
Pipeline and Hazardous Materials Safety Administration
“ineffective leak detection system”
Pipeline had several defects (internal corrosion)
BP used a different inspection system (UT technology vs. pipeline inspection guages (PIG))
Browne Steps Down
January 12, 2007
Browne will step down as CEO in July 2007
4 days before Baker report released
Widely recognized as one of Great Britain’s top businessmen
Financial Legacy: M & A, rebranding, 5X increase in profits and market cap, 2.5X increase in share price
The Baker Report
January 16, 2007
Critical of BP’s approach to process safety
Failed to give process safety the same emphasis as other initiatives including environmental and other safety initiatives
Should have paid more attention to previous incidents (chemical releases ; fires)
Refineries did not get the same importance as exploration
Decentralized management and entrepreneurial culture delegated substantial discretion to plant managers without outlining expectations regarding process safety, responsibility, or accountabilityCommunication lacking
Contract vs. union workforce problems
“instances of lack of operating discipline, toleration of serious deviations from safe operating practices, and complacency”
Not restricted to BP

10 recommendations
10 recommendations
1.Process safety leadership (top down)
2.Process safety management system
3.Process safety knowledge and expertise
4.Process safety culture
5.Clearly define expectations and accountability for process safety
6.Support for line management
7.Leading and lagging performance measures for process safety
8.Process safety auditing
9.Board monitoring
10.Industry Leader
BP: The Follow-up
Integrity was questioned
One year “worst refinery accident” ; “worst oil spill”
“bloated profits”
“bad pipelines”
Failed to communicate what was important
Cost, safety or environment
Did org structure allow it to do what is necessary?2010
Toxic gas release at Texas City refinery that lasts 40 days (sold in 2013)
Deepwater Horizon Oil Spill
Cause: cost-cutting?

Big Data Overview
Big Data
We create so much data today, how can organizations use it?
Data mining
Buying trends
Targeted marketing
Mitigate risky business practices, employee fraud (operational risk), ; black swans
Most risk management
Use past data to predict future risks
“risk landscape is changing so fast, that historic data is no longer a good predictor for tomorrow”
Article is presented as a Q;A
Business risk, operational risk, black swans, and behavioral analytics
What are the different types of risk organizations need to think about, from operational risk to the so-called black swans?
Operational risk – the people, processes, and systems in place to produce the company’s product/service
Internal fraud, external fraud, products & business practices, damage to physical assets, business disruption, system failures, process management, employment practices, workplace safety
What is a black swan risk?
An extreme outlier: high impact, hard-to-predict, rare events that generally people don’t expect.
E.g. Bernie Madoff, mortgage crisis
How has risk changed in recent years?
Globalization, cascading network effect
Operational risk – 30% of business loss
Where does data analytics fit in?
Tools to predict areas of vulnerability in organizations to black swans and other kinds of risk
Look for markers of situations where human behavior can impact operational risk
Look for factors that influence human behavior
Laziness, fatigue, moral or ethical “opportunities”, stressors (debt, job concerns, family issues)
Could data analytics have helped BP?
There were reports that on-site employees were worried about such an event, but no channel to communicate
BP didn’t monitor systems closely, costly to do so, cut corners
Future of behavioral analytics?
Systems are pretty good at looking for potential risks ignoring the human element
Behavioral analytics adds that examination of the human component, mixed with statistics and external analysis
More complete or “intelligent” risk analytics.
The people, processes, and systems in place to produce the company’s product/service describes which of the following risk categories?
operational
Which of the following terms best describes a rare, unexpected event (e.g., the discovery of alien life on Mars)?
black swan
Business risk can encompass which of the following?
operational
hazard
strategicall of the above

The reading on behavioral analytics discussed the possibility of fraud can be within which of the following categories?
operational
In the case discussed in class, we identified some overriding themes. Which of the following was NOT one of the overriding themes?
Correct answer; managerial efficiency
Answers:
a. corporate strategy
b. workplace safety
c. corporate culture
d. managerial efficiency
Which investigative body concluded that BP endangered workers to cut costs?
US Chemical Safety ; Hazard Investigation Board (CSB)
Which of the following was NOT included in the 10 recommendations from the Baker Report?
additional expertise within workforce
process safety culture
support for line management
board monitoringCorrect additional expertise within workforce

Sally desperately wants to open her own nail salon. She decides to open on the north side of town, which she did not realize receives relatively little traffic. Which category would this error fit under?
strategic
According to “From Superstorms to Factory Fires”, the author was surprised to find what kind of correlation between how much a firm spends annually on procurement at a particular site and the site’s impact on company performance? ch.9
little correlation
In “From Superstorms to Factory Fires”, what was Ford able to do using the model described in the article? ch.9
Using the model, Ford was able to identify the supplier sites that required no special risk-management attention.
In “Strategy, Risk, and the Global Financial Crisis”, Walter Keichel argues that a fair-minded observer would conclude which of the following statements in regards to the financial crisis?
While strategy and its champions may not have been a main cause in bringing on the global financial crisis, they did not do much to avert it.
In “Strategy, Risk, and the Global Financial Crisis”, what was a major difficulty encountered by Boston Consulting Group when the firm canvassed Indian, Japanese, European, and American firms?
Firms were unwilling to implement a strategy, replying “We don’t do strategy”.
The following statement describes which of the following theories? “_________ is a theory of management that analyzes and synthesizes workflows. Its main objective is improving economic efficiency, especially labor productivity.”
Taylorism
Loss exposures
any condition or situation that presents a possibility of loss, regardless of whether that loss actually occurs
Three elements of loss exposure:
asset exposed to loss
cause of loss
financial consequences of loss
Five main categories or risk faced by individuals are:
liability, health, property, life, and financial
Risk management process
determine objectives, identify risks, evaluate risks, choose your alternatives, implement, review and evaluate
A flood is an example of:
hazard risk
The primary causes of BP’s march 2005 accident were absences of:
safety leadership, independent panel to review safety, and inadequate resources for safety
Overriding themes of BP study were
corporate strategy, workplace safety, corporate culture, public relations, and process management
Business risks encompass
operational, hazard, financial, and strategic
Operational risk
is potential losses from internal sources including manufacturing processes, fraud, mismanagement, and employee mistakes
Hazard risk
is the traditional risk, management stuff, fire, tornado, flood, etc
Financial risk
is potential variation due to financial causes (ex: losses due to exchange rate, investment losses, credit losses)
Business risk
causes deviation in profitability and can be cause by many things, prices, regulation, competition, etc
Strategic risk
are potential losses from poor business decisions
What percentage of business losses are attributed to operational risk?
30%
Taylorism
is the theory of management that analyzes and synthesizes workflows. its main objective is improving economic efficiency, especially labor productivity
The primary benefit of using the linear optimization model is
it reveals supply chain dependencies and bottlenecks
High REI scores=
big impact if disrupted
Time to Recovery (TTR) is
the time it would take for a particular node to be restored to full functionality after a disruption
Supply chain risk
is anything that can interrupt the ultimate product delivery anywhere along that supply chain
In liability cases what may be awarded
general, special, and punitive
Big data can be used for
targeting marketing, mitigating risky business practices, and predicting black swans
Risk/reward
Employers want employees who can make critical decisions. Your education as a whole in the College of Business is about understanding the relationship between risk and reward.
Basis of insurance
People are willing to pay to avoid risk
Individuals
Measure risk and reward using expected utility. They are risk averse and prefer the sure thing over uncertainty.
Organizations
Measure risk and reward by using expected value, CAPM, and the Efficient Frontier. There is no natural risk aversion, but they do look at risk and their decisions do reflect risk. When discussing risk and reward, we use the terms opportunity cost aka cost of capital.
Cost of capital
aka Opportunity cost – can be utilized by organizations through discounting.
CAPM
The Capital Asset Pricing Model – only reward systemic risk and not worried about diversifiable risk. These risks affect the entire portfolio.
Diversifiable Risk
If you can diversify, there is no risk, and the net position won’t change.
Efficient frontier
a graph that shows the tradeoff between risk and reward.
Government and society
Measuring the reward to society is difficult. Many times government is the only entity able to take on risk, regardless of the reward.
Bias problem
One of the big problems we have with modeling how decisions are made is that they do not explicitly account for biases on the part of the decision maker.
The law of unintended consequences
outcomes that are not the ones intended by a purposeful action.
What factors most influence decision-making?
Experiences, Age, Gender, or Religion
What motivated your behavior?
Money, Moral Code, Self Gratification, or Fear of Failure
The law of unintended consequences says that people who set up incentive systems are unable to predict all of the responses to that system.
true
What is the safest country in the world in terms of investment?
Japan (0.52 return rate)
What does The United States pay as a rate of return?
2.42 rate of return; they are riskier than Japan because the number is higher.
What do political incentives do to an incentive system?
They focus on the short term planning of a government
When organizations and politicians have higher risk, what do they do to the discount rate?
The discount rates are increased
At which level are incentives found?
Individual, Organizational, and Societal level
Which of the following is a way organizations utilize opportunity cost in their calculations?
discounting
What motivates an individual to make or perform an action?
incentive
Individuals and organizations measure risk/return with expected utility
false
A bias can be described by what?
subjective view
Age biases occur when people in different age groups interpret information about risk different.
true
People who have experienced a low probability and high consequences event tend to overestimate its likelihood. What type of bias does this describe?
experience bias
A _____ is an inclination of temperaments or outlook to present or hold a partial perspective at the expense of (possibly equally valid) alternatives in reference to objects, people, or groups.
bias
Political incentives often do what to the discount rate?
increase the discount rate
I am ultimately responsible for my own health care?
true
I am ultimately responsible for my own retirement planning?
true
A family can get by on $50,000 a year
false
At what salary are people the happiest?
Princeton University says <$50,000 based on a survey of 450,000 people because higher salary means more time working. A more recent survey of 10,000 people says $75,000.
Should you switch your choice from Door #1 to Door #2?
Yes, it doubles your chances of winning. You start with a 1/3 chance of winning with door #1, your have 2/3 chance of door #2 or door #3. But we know that nothing is behind door #3, so it means there is actually a 2/3 chance of winning with door #2.
Being forced to “think faster” increases your willingness to take risk?
true
Athletes get tested for performance enhancing drugs, we should also test students for performance enhancing drugs.
yes
Taking a smart pill is just a way of helping you study, it is not cheating, it is perfectly ethical.
false
Which category probably faces the largest financial impact from premature death?
Married wage earning adults with dependents
According to Alan Schwarz, which involved party should first change how ADHD medicine is given?
doctors
According to Joshua Gowin’s article, some university surveys have shown that up to 35% of students have obtained which two drugs as a study aid?
Adderall and Ritalin
In support of “smart” pills, Joshua Gowin introduces an anecdote of which historical event to illustrate the positive power of cognitive enhancers?
the french revolution
Which of the following is NOT one of the five main categories of risk faced by individuals?
reputational
The financial consequences of property risks include:
reduction in property value, increases in expenses, lost income
In which age category do you face the highest risk of premature death?
in your 40’s
According to Joshua Gowin’s article on “smart” pills, what is not a characteristic of students who used Ritalin and Adderall as study drugs?
These students did steady work throughout the semester.
According to Joshua Gowin’s article on “smart” pills, what are the characteristic of students who used Ritalin and Adderall as study drugs?
These students tended to have lower GPAs in the 2.0-3.0 range, they smoked more pot than average students, they skipped more classes than average students
What best describes a rare, unexpected event?
a black swan
According to the reading on behavioral analytics, what percentage of business loss can be attributed to operational risk?
30%
What were the three primary causes of BP’s March 2005 accident?
absence of safety leadership, did not have an independent panel to review safety, and inadequate resources for safety.
What was not a primary cause of BP’s March 2005 accident?
overworking employees
In the case discussed in class, we identified some overriding themes. What are they?
Corporate strategy, workplace safety, and corporate culture.
What is not an overriding theme?
managerial efficiency
What type of risk does Dr. Nyce not consider it’s own category of risk?
reputational risk
What type of integration best describes the type of organization BP is?
vertical
What was included in BP’s corporate strategy?
Growth through mergers and acquisitions, doing more with less, and cost cutting.
What was not included in BP’s corporate strategy?
Growth through hostile takeovers
The people, processes, and systems in place to produce the company’s products/service describe what category of risk?
operational risk
You purposely avoid getting gas at a BP station. – Brand management / reputation question
false
It is necessary for corporations to put a value on human life.
true
Corporations should invest in safety until its marginal costs equal its marginal benefits.
Ideally less, but sometimes this is not enough.
It is your employer’s responsibility to provide you with a safe work environment.
true
It is okay for your employers to drug test you if your performance at work could endanger others?
true
It is okay for your employer to gather personal information (tax returns, marital status, credit score, etc.) on you if your performance at work could endanger other?
true
It is okay to use behavioral analytics in the hiring/firing/intervention of employees.
true
In “From Superstorms to Factory Fires”, what was Ford able to do using the model described in the article?
Using the model, Ford was able to identify the supplier sites that required no special risk-management attention.
According to “From Superstorms to Factory Fires”, the author was surprised to find what kind of correlation between how much a firm spends annually on procurement at a particular site and the site’s impact on company performance?
Little Correlation
The following statement describes which of the following theories? “_____” is a theory of management that analyzes and synthesizes workflows. Its main objective is improving economic efficiency, especially labor productivity.”
Taylorism
Which of the following is a primary benefit of using the linear optimization model?
The model reveals supply chain dependencies and bottlenecks.
Which of the following is not an example of PI (performance impact)?
unemployment rate
Which of the following is not described in “Strategy, Risk, and the Global Financial Crisis?” as being part of the “constellation” of forces responsible for the blurring of traditional industry lines?
interest from investors
Which of the following is not true about REI scores?
REI scores help determine macroeconomic effects of monetary policy.
Which of the following provides the clearest description of time to recovery (TTR)?
The time it would take for a particular node to be restored to full functionality after a disruption.
What does Thomas Bass from “Derivatives: The Crystal Meth of Finance” mean when he says, “Derivatives do the work of Adam Smith’s invisible hand?”
Derivatives transmogrify individual greed into the collective good.
According to Yong Chen’s article, how do derivatives derive value?
From other assets
In “Are the risks of Derivatives Manageable?”, Thomas A. Bass posits that market failures were due in part to mismanagement of derivative investments. What does he recommend?
Bass recommends widespread regulation of derivatives or a complete ban.
Which Warren Buffet quote is echoed throughout “Derivatives: The Crystal Meth of Finance” as an attack on derivatives?
“Derivatives are the financial weapons of mass destruction.”
Chen believes derivatives do not lead to more overall risk-taking because:
Hedge funds who use derivatives experienced less volatility and average market exposure during market downturns or extreme market events.
Which of the following do I not consider to be its own category of organizational risk?
Reputational
Which of the following was not included in he corporate strategy perspective for BP?
Growth through hostile takeovers
OSHA focuses on personnel safety while process safety focuses on the prevention of which of the following?
Leaks in hazardous production processes and fires
Which of the following is an example of a hazard risk?
Flood
What types of alternative fuels did BP pursue after Browne became CEO in 1995?
Solar
Alan Schwarz’s attack on “smart” pills centers around the story of _______, a college class president and aspiring medical student who became addicted to the “smart” pill he was improperly prescribed.
Richard Fee
According to Joshua Gowin’s article on “smart” pills, which of the following is not a characteristic of students who used Ritalin and Adderall as study drugs?
These students did steady work throughout the semester.
Which of the following are elements of a loss exposure?
Asset exposed to loss, Cause of loss, and financial consequences of loss
Which of the following is not a main bias we encounter when developing models?
Location bias
Eric must keep a B average, or else lose his starting position on the basketball team. What type of incentive best describes this situation?
Coercive

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