Risk modeling is as much art as it is science:
The Zen of Modeling aims to capture the struggle for risk modeling beauty
- An undocumented risk model is only a computer program
- A risk model that cannot be programmed is only a concept
- A risk model only comes to life with empirical validation
- Correct implementation of an imperfect model is better than wrong implementation of a perfect model
- In complex systems there is always more than one path to a risk model
- There are no persistently true models but there are many persistently wrong models
- Correlation is imperfectly correlated with causation
- Nirvana is the simplest model that is fit for purpose
- Hierarchical systems lead to hierarchical models. Uncertainty is highest at the top
- Model assumptions are more vulnerable than model structure
- Building risk models is easy, managing model risk is not
- Models inherit their nature from their creators, but nurture from their use environment
- Models don’t speak people’s languages. It is the responsibility of the modeler to translate to an understandable idiom
- People don’t care about models, only about model outcomes. It is the responsibility of the modeler to be responsible.
- Models closed in black boxes perish. Models live a healthy life when open and free.
Update May 2017: The Zen of Modeling has also been integrated into the Open Risk Manual to enable easier linking to the knowledge based developed there.