Methodology

The approaches used in making forecasts, and particularly in political risk analyses, are usually qualitative and quantitative. The first are limited by their subjectivity and place emphasis on the empirical analysis of the single case. Although the second have the advantage of being more objective, they are limited by a lack of technical support.
The third type, or theory based approaches (those used by ISPRI), and therefore the only  approaches that may be deemed reliable, are characterized by keeping the interpretations of the expert in mind as well as the indications provided by the data, and by the fact that they go beyond making simple correlations to succeed in explaining the phenomena studied. A good forecast cannot but come from solid theories (explanations). It is implied, in fact, that behind scientific-based forecasts lie scientific theory.
Besides the Analytic Hierarchy Process (AHP), ISPRI makes use of two theories (or models) known to political scientists: the first is a systemic theory (the theory of political reliability) for which the length of time that a system lasts in time does not depend on one or more specific factors as much as the structural characteristics of the system itself; the second is the expected utility hypothesis which takes the resources of the actors of the system into consideration as well as the importance that they attribute to a certain solution to the problem that is being studied. This type of forecast refers to a single event and not to a category of events, as is the case with actuarial forecasts.

Regardless of the possibilities that scientific developments offer today and of the fact that the political system is the environment of the economic system in motion, initiatives are rare, at least in Europe, that tend toward systematically and profoundly studying this nearly unknown environment within which we must operate. Paradoxically, the preference has been to spend what are at times incredibly large amounts on insurance against political risks, or on agreements – these too are risky – with the foreign country. The very same national agencies that are supposed to protect foreign investments have lost thousands of millions of euro for not having adequately equipped themselves. Even the most important banks have stuck to making purely economic analyses (the so-called country risk in banking jargon). Only in extremely rare cases does a bank, abroad, have a political risk department, where, however, the approaches used are never of the third type of approach, that is the theoretic or scientific approach.