It's not what you don't know that causes RISK. It's what you're certain you know that's actually wrong.

The “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so” quote, commonly attributed to Mark Twain but likely of uncertain origin with early variants traced to humourist Josh Billings in the 1870s, captures a profound insight:

• The real danger lies not in ignorance of unknown factors, but in the overconfident embrace of beliefs or assumptions that turn out to be false.

At its core, it warns against the "illusion of knowledge “, the cognitive trap where certainty in flawed information leads to misguided actions, often with severe consequences.

This idea is particularly apt for risk management, a discipline focused on identifying, assessing, and mitigating uncertainties in business, finance, projects, AML/CTF/CPF or operations.

Risk management thrives on humility and probabilistic thinking, acknowledging

• "Known unknowns" (gaps in knowledge that can be addressed)

while guarding against

• "Unknown unknowns" (unforeseen events that cannot be anticipated or predicted).

However, the quote spotlights a subtler peril:

• Overconfidence bias,
• Where decision-makers cling to "known knowns" that are actually illusions, closing their eyes to real risks and amplifying vulnerabilities.
• This bias, rooted in human psychology, encourages
• Selective attention to confirming evidence (confirmation bias) and
• Dismisses contradictory signals, resulting in inadequate risk assessment and mitigation strategies.

Here's why the quote resonates so strongly in risk management contexts, with key examples:

1. It Exposes the Dangers of False Certainties in Decision-Making

• Risk managers often deal with complex systems where assumptions about stability or predictability can prove disastrously wrong. For instance,
• Believing "for sure" that a market trend will continue indefinitely ignores volatility and black swan events.
• The quote reminds practitioners that unchallenged "facts" can create blind spots, turning manageable risks into crises.
• Example from Investing: During the 2008 financial crisis, banks and investors "knew for sure" that housing prices would keep rising and subprime mortgages were low-risk due to historical data and rating agency assurances. This false certainty led to massive leverage and inadequate hedging, resulting in trillions in losses when the bubble burst. Similarly, macro forecasters often overestimate their understanding of economic variables, such as interest rates or GDP growth, as seen in the Federal Reserve's consistently inaccurate projections since 2009, which misled markets and heightened systemic risks.

2. It Highlights Behavioural Biases That Undermine Risk Frameworks

• Overconfidence bias, as illustrated by the quote, causes professionals to minimise uncertainties and over-rely on past successes or models that "just ain't so" in new contexts.
• This can erode diversification efforts and foster risky behaviours, such as concentrated exposures.
• Example from Portfolio Management: Successful fund managers may become overconfident in their stock-picking abilities, building portfolios heavily weighted toward a few "high-conviction" assets while downplaying diversification. If market conditions shift unexpectedly (e.g., due to geopolitical events such as the Ukraine war), this false certainty can amplify losses. Hindsight bias compounds this, where past wins are retroactively deemed predictable, reinforcing the illusion and weakening risk controls.
• Example from Business Operations: A skilled professional, such as a doctor opening her own practice, might "know for sure" her expertise guarantees success, ignoring business risks like cash flow management or competition. This confirmation bias, seeking only affirming data, can lead to failure, as she overlooks warnings from advisors or staff, allowing minor issues to escalate into insolvency.

3. It Promotes Humility and Robust Risk Strategies

• Effective risk management requires challenging assumptions through stress testing, scenario planning, and diverse perspectives to uncover what "ain't so."
• The quote encourages a shift from arrogance to curiosity, minimising areas of false control while maximising safeguards against uncertainty.
• Example from Broader Events:
• The COVID-19 pandemic exposed how reliance on pre-2020 economic models "knew for sure" that supply chains were resilient, failing to account for global disruptions. This overconfidence delayed risk responses, causing widespread financial turmoil.
• In contrast, the 2016 U.S. election outcome defied polls predicting market declines under a Trump win; instead, stocks surged, underscoring how political "certainties" can derail investment risk models.

In essence, the quote is a timeless cautionary tale for risk managers: actual expertise lies in questioning what you "know for sure," fostering resilience against the pitfalls of overconfidence and ensuring decisions are grounded in evidence rather than illusion.

By adopting this mindset, organisations can better navigate uncertainty and avoid self-inflicted problems.

If you would like help addressing these matters, please know how to contact us.

Mathew Beale - Chartered FCSI

Principal & Director - Comsure Compliance Limited, Comsure Technology Limited, Comsure Mauritius

(the "Comsure Group of Companies")

mathewbeale@comsuregroup.com

www.comsuregroup.com

T (Jersey) +44 1534 733-588 /+44 7797 747-490

T (Mauritius) +230 214-6487 / +230 5717-6907