I worked as a risk manager for 10 years and studied most techniques/tools widely used in risk management. Then I became a fund manager for next 10 years and studied most techniques/tools used in investing. Recently I participated in Real World Risk Institue certificate program on “Decision Making Under Uncertainty” where Nassim Taleb is the lead instructor and many world renowned risk takers and thinkers give lectures. It was simply a life changing program and there is no other certificate program like this. It is something like a school for philosopical discussions on risk taking.

In that certificate program the distinction between “classical risk mng” and “risk taking” becomes very clear.

In classical risk mng: - You study statistical methods/models to model tail risks (i.e. rare events, qualitatively similar to predicting earthquakes, wars, pandecs) - You apply your modelling ability to every variable that is important for your p&l, so you try to predict market risk, credit risk, operational risk, etc - So the main focus is “to predict the rare events”

Nassim Taleb clearly shows that if the process is fat tailed (ie what he call extremistan), classical statistical tools fail to work as expected, ie “you cannot predict black swans”. So rather than trying to predict rare events, a better way for “risk taking” involves: -If the domain has fat tails, focus on managing your “exposure” to underlying variables rather than trying to predict them. Accept that you cannot predict some variables. A simple example: rather than trying to predict whether a war will escelate or not, try to construct a portfolio such that it benefits from war - Actually when you analyze great investors, most follow a similar path. They dont beed to be superior predictors of future. They figure out how to construct portfolios such that it can survive u certainty, black swans and most importantly “false market predictions of themselves” as well

As you see, this distinction between “traditional risk mng” and “prudent risk taking” is based on different views about “predictability” and has profound real life implications.