A common practice in risk management is based on the expected value of the costs, namely, the integral of cost estimates times the probability of the events ending up in these costs. However, as Taleb (2010, pp. 9, 38-44, 100-119, 135-164) explains, this method is useless, because we never have the data required to estimate the costs and their probabilities. This means that we cannot get values for the risks that may be useful for decision making.
Updated on 05 May 2017.