An LLM should not be used to determine if a trade is risky, but rather to explain a risk decision after a dedicated system has made it. The process should involve three distinct steps: first, a risk model measures risk by producing a precise numerical probability; second, a policy rule decides on an action based on this number; and third, an LLM communicates the decision and its reasoning in plain language. This structured approach prevents the common mistake of asking an LLM to perform the risk assessment itself, which can lead to imprecise and untestable language instead of actionable data. AI
IMPACT Clarifies the optimal role of LLMs in risk management, emphasizing their use for explanation rather than decision-making to ensure precision and accountability.
RANK_REASON Opinion piece discussing the appropriate application of LLMs in financial risk assessment.
AI-generated summary · Google Gemini · from 1 sources. How we write summaries →
