The one-in-a-thousand-day problem
Regulations Risk AI
Financial crises usually inflict the most damage when banks suddenly shift from pursuing profits to survival. This column argues that such drastic behavioural changes render statistical analyses based on normal times ineffective. That is why we cannot predict the likelihood of crises, or what banks will do during those crises. Since this behaviour arises from a natural desire for self-preservation, it cannot be regulated away.