Hmmm, here's to wishing AIG had Wargammers

I listen to a number of Podcasts. TED Talks, EconTalk, Stuff you missed in History Class, FLOSS Weekly, etc. There is one podcast that overall has not been very interesting since it seems like each episode is mainly a book review. But of it's collection of book reviews, there was one that stood out from the rest. The podcast is named "The Invisible Hand". The specifc podcast that caught my interest was the book, Wargaming for Leaders: Strategic Decision Making from the Battlefield to the Boardroom. While this podcast was generally interesting since it described how the consulting firm Booz Allen Hamilton ran simulations in a gaming style for each business case, there was a specific example that makes you slap your forhead and cringe. The client for Booz Allen Hamilton asked for various cases that included real estate as a factor. For fun the Booz Allen Hamilton consultant modeled the banking industry's loans and risk transfer with insurance and it's impact if housing prices dropped. As per the model built, the whole thing collapsed as soon as housing prices dropped by $1. What was the client's reaction ? "Good thing that will never happen".

Yikes !! I wonder if AIG had wargammers talking with the actuaries if we the US tax payers would have 80% ownership of AIG today ? Well, it's all an academic excersise now. Have any of you used a simulation to prevent any problems ?

The Invisible Hand podcast web site
MP3 file for Wargaming for Leaders...