In modeling risk, the human factor was left out

a NYT article.

Human factor = human behavioral uncertainty ("Indeed, the behavioral uncertainty added to the escalating complexity of financial markets help explain the failure in risk management.")

Solution? Precautionary principle ("Financial regulation, Mr. Lo said, should be seen as similar to fire safety rules in building codes. The chances of any building burning down are slight, but ceiling sprinklers, fire extinguishers and fire escapes are mandated by law." "We’ve learned the hard way that the consequences can be catastrophic, even if statistically improbable,” he said.)