Harnessing The Power of Feedback Loops

Article in WIRED, July 2011. Our brains and our behavior are driven by feedback loops. 
In factory automation, feedback loops are used to control machines tools, robots, transportation and handling systems, assembly, ... to go-to mechanisms need to know where-they are. Machine behavior is the result of constant instantiation, calibration and recalibration of models, say geometric, kinematic, dynamic, elasto-plastic, thermal, ... in feedback loops.

In The Blank Swan of Metal Forming I have outlined that knowing how feedback loops operate in machinery can be broadened to financial risk management.
Systems shall provide risk managers with information about the market dynamic and the impact of their actions in real time to give them a chance to change that actions.

Four stages if a feedback loop in risk management:
  • not only the market dynamic, but the behavior (decision process) must be evident
  • the relevance of this information must be inverted into valuation and risk model information
  • across scenario calculations help to understand decision consequences
  • a moment where risk managers can recalibrate their decision process and act.
This last stage is measured and captured and the feedback loop starts again.

Obviously, systems of that power need massive data management, accurate and robust models and blazingly fast calculations - like UnRisk