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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

In scenario analysis for operational risk, a workshop estimates a severe cyber-extortion event. Experts give a frequency of once in 20 years and a severity with a most-likely loss of USD 10 million. Which practice best reduces the bias of anchoring on the first estimate voiced by a senior executive?

Gathering expert estimates independently and anonymously before group discussion best reduces anchoring. It stops a senior person's first figure from steering others. Starting from one estimate, restricting participants, or using average historical losses either reinforces bias or ignores severe tail events.

  1. AUsing the executive's estimate as the base case and having others adjust it
  2. BCollecting experts' estimates independently and anonymously before group discussionCorrect
  3. CLimiting participants to the business line that owns the risk
  4. DReplacing the scenario with the bank's average historical loss

Explanation

Independent, anonymous elicitation (as in Delphi-type approaches) prevents the first or most senior opinion from anchoring others. Adjusting from one estimate reinforces anchoring, limiting participants narrows perspective, and historical averages cannot capture a severe tail scenario.

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