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AQR’s Aaron Brown on Red-Blooded Risk
AQR Capital Management's Aaron Brown warns that investors dependent on computers are on autopilot, and losing any realistic sense of the risks they’re taking in the process.

The capital markets remind Brown of cars: Investors no longer have any direct contact with people on the floor of an exchange. To be sure, computer-based trading systems and intermediate processing systems make markets far more efficient. But investors lack the road feel they used to enjoy when they knew who was buying and selling. Our financial system has become so complex that it has no meaning anymore, says Brown, 55. Its a system that doesnt work. His observations prompted him to write Red-Blooded Risk, a recently published book that shows how advancements in the mathematical analyses behind game theory radically changed how the most successful investors operate. For example, he says, market participants make the mistake of designing complex risk mitigation mechanisms to cope with high-speed markets. When a system fails, the urge is to add a system that addresses the failure. But chances are the added system will cause the next problem, says Brown. What makes a VW bus so fun is that it doesnt require a 5,000-page operators manual.