Dunning-Kruger effect and Expected credit loss: Difference between pages

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''Behavioural economics''.
''Financial reporting - impairment of financial assets - IFRS 9''.


The Dunning-Kruger effect is an irrational tendency among certain incompetent individuals systematically to ''overestimate'' their true level of competence.
(ECL).


In simple terms, the Dunning-Kruger effect is the reverse of the [[Impostor syndrome]].
Expected credit loss is a calculation of the present value of the amount expected to be lost on a financial asset, for financial reporting purposes.


A possible explanation for the Dunning-Kruger effect is that the skills we need to assess our level of task competence correctly, are exactly the same skills that we need to perform the task itself.  Those lacking in one of these sets of skills would then, by definition, lack the other set of skills too.
It is calculated as:


The Dunning-Kruger effect can be 'cured' with even a relative moderate amount of appropriate training.
ECL = PD x EAD x LGD x Discount Factor




Such tendencies to assess evidence incorrectly are known collectively as 'cognitive bias'.
Where:


ECL = expected credit loss


PD = probability of default


== See also ==
EAD = exposure at default
* [[Impostor syndrome]]
* [[Behavioural economics]]


[[Category:Corporate_Strategy]]
LGD = loss given default
[[Category:Business_and_Operational_Risk]]
 
[[Category:Managing_Risk]]
Discount Factor is based on the expected date of default
 
 
==See also==
*[[Default]]
*[[Discount factor]]
*[[Exposure At Default]]
*[[Financial asset]]
*[[IFRS 9]]
*[[Impairment]]
*[[Loss Given Default]]
*[[Probability of Default]]

Revision as of 19:20, 3 February 2018

Financial reporting - impairment of financial assets - IFRS 9.

(ECL).

Expected credit loss is a calculation of the present value of the amount expected to be lost on a financial asset, for financial reporting purposes.

It is calculated as:

ECL = PD x EAD x LGD x Discount Factor


Where:

ECL = expected credit loss

PD = probability of default

EAD = exposure at default

LGD = loss given default

Discount Factor is based on the expected date of default


See also

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