Over the last decades, there have been a number of significant advances in risk management.

Within finance and markets, important advances include portfolio selection and optimisation (Markowitz), option valuation (Black & Scholes), later extended to real options, and value-at-risk. These are all quantitative techniques for understanding and analysing risk. Finally, a number of new markets for risk transfer have emerged.

Many of these concepts would be impossible to implement without the increase in computing power, especially the capacity to deal with simulations and massive data volumes and time series.

A third area where we have gained better insight into risk management is “the mind of the decision maker”. When organisational decision making first was introduced as a concept, the search was for the optimal decision. This proved difficult to find, and Herbert Simons “bounded rationality” – i.e. taking “good enough” decisions within the constraints of time, complexity and limited mental computational power became the dominant paradigm. Later, Kahneman and Tversky demonstrated that the rational decision assumed in economics simply does not describe how people actually make decisions under uncertainty. Prospect theory has identified factors that can lead us to decide against our economic interest even when we know better.