Courtship is a risky business. In Sense and Sensibility, for example, Marianne invests much time and emotion in Mr Willoughby. He turns out to be a cad and Marianne avoids conjugal ruination only because Colonel Brandon is so forbearing.

Things are even worse in the non-fictional world. There are many Mr Willoughbys and few Colonel Brandons. Every year millions of lives are irreparably damaged by “love cheats”. Yet, scandalously, dating is almost wholly unregulated. What incompetence or corruption can explain the Government's inaction?

Regulating dating will strike most people as an absurd idea. And so it is. But no more absurd than the now popular idea that financial sector calamities, such as the current “credit crisis”, are the fault of insufficient regulation of the banking industry. In fact, the two ideas are absurd for the same reason. If we see why regulations cannot help daters, we will see why they cannot help investors.

Consider Marianne assessing the advances of Mr Willoughby. He is handsome and charming. Should things work out with him, Marianne will enjoy a good return on her courtship investment. But, as we all know, handsome charmers are also risky. Being attractive, they have many opportunities to fool around. Less attractive men, though yielding lesser rewards to their wives, also present them with less risk.

Marianne must decide where she wants to operate on the dating risk-return spectrum. Her favoured position will depend on how much she values charm, how much she fears betrayal and the dating “risk premium” - that is, how much more charm you get for taking more risk of betrayal.

Having made your choice and taken your chances, there are two ways that things can go wrong. The first is simple bad luck. If 20 per cent of men with Mr Willoughby's known characteristics turn out to be cads, then 20 per cent of women with Marianne's risk-reward preference will end up losers. If Marianne is among them, that is bad luck for her.

But there is no systematic error here that requires correction by regulation. If women who prefer the Mr Willoughby trade-off are properly informed about the risk premium - if they know how much risk they are taking for the sake of how much reward - then the gains to the 80 per cent who get lucky must exceed the losses to the unlucky 20 per cent.

The same goes for investing in bonds. A “junk bond” rated B-minus has a 10 per cent probability of default. In other words, one in ten will not be repaid in full. But, provided the risk premium for junk bonds (ie, the extra interest earned for taking this extra risk) is correct, the benefits derived from the other nine will exceed this loss.

Bad luck is not, however, the only cause of loss. Ignorance is another. People sometimes take risks not because they are willing to bear them for the sake of the possible returns, but because they underestimate them. Such ignorance is the cause of the current credit crisis. Investors in bonds backed by sub-prime mortgages did not realise how risky they were. Had they known, they would have demanded a higher risk premium, taken less risk and avoided the crisis.

Ignorance also explains some losses in the dating game. Underestimating the risks presented by a potential husband is especially common in cross-cultural dating. My own move from New Zealand to England provides an example. The girls in my new social circle, all well brought up, did not expect such a charmless young man to present so much cad risk. This allowed me to attract many potential fiancées despite offering a low-risk premium. Back home, where the girls could read me, I had enjoyed far less success.

This is where you might think regulation can help. We are here dealing with a systematic error that can surely be corrected. Had regulators imposed a tax on dating muttish colonial immigrants or issued a warning about the unusual levels of risk we present, much grief could have been avoided.

Many people, including the Basle Committee on Banking Supervision, are now saying the same thing about the credit crisis. Had liquidity risk - which I will not explain but is what everyone missed - attracted higher levels of “regulatory capital” it would have been priced into bonds and the crisis would have been avoided.

Well yes. But the fact that after losses have occurred we can think of regulations that would have prevented them does not mean that regulation is any use for avoiding losses. The question is whether regulations that we could have thought of before the loss would have avoided them. And the answer is no.

When my now former fiancées did not know of the risk I presented, regulation to protect them from me was then impossible. And now that everybody knows about the risk, regulation is redundant. The same goes for liquidity risk in mortgage- backed bonds. When no one knew about it, regulating it was impossible. Now that everyone knows about it, regulating it is pointless; the market will now price it in.

In fact, once risks are known, regulating them is worse than useless. It can only move the price of risk away from, and usually above, the market price. That is a recipe not only for inefficiency but for future calamities. It encourages financiers and investors to seek profit in areas where the regulators are not imposing their burdens - namely, those where the risks are poorly understood.

And that does not make the world a safer place. As Donald Rumsfeld could tell you, unknown unknowns are more dangerous than known unknowns.

Jamie Whyte is the author of Bad Thoughts: A Guide to Clear Thinking

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