By Larry Kummer. From the Fabius Maximus website.
Summary: How to deal with risks dominates our headlines, usually driven by single-interest groups that see only their favorite threat. Statistician Nassim Nicholas Taleb’s latest work offers a way to identify the most serious threats facing us, and determine how much we should spend to fight each of them. It has received much attention. Is it useful?
A series of papers by Nassim Nicholas Taleb et al made a large contribution to our understanding of risk: The Precautionary Principle within the statistical and probabilistic structure of “ruin” problems. The main paper is “The Precautionary Principle (with Application to the Genetic Modification of Organisms)“, well-worth reading for anyone interested in GMOs or risk analysis. I will not attempt to summarize it here; it deserves to be read in full. I will point out one aspect of relevance to many of the key challenges of our time: how should policy-makers allocate funds to prevent or mitigate shockwave threats — potentially disastrous but of low or certain probabilities?
Excerpt: What is a “ruin” scenario, and how should we respond to them?
“We believe that the PP should be evoked only in extreme situations: when the potential harm is systemic (rather than localized) and the consequences can involve total irreversible ruin, such as the extinction of human beings or all life on the planet.
“A ruin problem is one where outcomes of risks have a non-zero probability of resulting in unrecoverable losses. …In biology, an example would be a species that has gone extinct. For nature, ‘ruin’ is ecocide: an irreversible termination of life at some scale, which could be planetwide.
“…Our concern is with public policy. …Policy makers have a responsibility to avoid catastrophic harm for society as a whole; the focus is on the aggregate, not at the level of single individuals, and on global-systemic, not idiosyncratic, harm. This is the domain of collective ‘ruin’ problems.
“…For example, for humanity global devastation cannot be measured on a scale in which harm is proportional to level of devastation. The harm due to complete destruction is not the same as 10 times the destruction of 1/10 of the system. As the percentage of destruction approaches 100%, the assessment of harm diverges to infinity (instead of converging to a particular number) due to the value placed on a future that ceases to exist.
“Because the ‘cost’ of ruin is effectively infinite, cost-benefit analysis (in which the potential harm and potential gain are multiplied by their probabilities and weighed against each other) is no longer a useful paradigm. Even if probabilities are expected to be zero but have a non-zero uncertainty, then a sensitivity analysis that considers the impact of that uncertainty results in infinities as well. The potential harm is so substantial that everything else in the equation ceases to matter. In this case, we must do everything we can to avoid the catastrophe.
“…If the consequences are systemic, the associated uncertainty of risks must be treated differently than if it is not. In such cases, precautionary action is not based on direct empirical evidence but on analytical approaches based upon the theoretical understanding of the nature of harm. It relies on probability theory without computing probabilities. The essential question is whether or not global harm is possible or not.”
———————— End Excerpt. ————————
Public policy implications of “ruin” scenarios
Taleb explains that “ruin” events must be defended against “at all costs …Because the ‘cost’ of ruin is effectively infinite …we must do everything we can to avoid the catastrophe.” This is operationally useless since there are many shockwave scenarios with ruinous outcomes.
By his theory, the relevant expenditure required is that required to “defend against” all of them. I will mention just two threats to illustrate this. First, the oceans are dying, with potentially ruinous consequences for humanity. See the Ocean Health Index; see the jellyfish warnings; see some of the many warnings about this problem.
Second, the Earth has been hit by asteroids and comets in the past, with ruinous consequences — sometimes exterminating the world’s major lifeforms. It will happen again. For details see these posts. Oddly, Taleb mentions the history of extinction-level events from asteroid and comet impacts, but does not mention why this kind of ruin event should not become a major public policy concern. It exactly meets his formal definition. (Similarly he writes about the odds of a Third World War, but does not discuss the “ruin” scenario of global nuclear war.)
After we’ve funded every ruin scenario “at all costs”, we have to spend more to prepare for the merely awful scenarios, such as earthquakes, tsunamis, pandemics (like the flu), and famines. Then there are more exotic threats, such as a reversal of Earth’s magnetic field, eruption of the Yellowstone supervolcano, continental destruction from other volcanoes, peak fresh water, and other shockwave events. We cannot fund vast sums on all of them.
How can policy-makers allocate resources across such a broad spectrum of threats? The recommendations of Taleb’s methodology provide less help than the simple and objective — albeit imperfect — the usual comparisons of probability, cost, and risk.
Tomorrow: Taleb warns us about climate change.
A super-volcano will erupt again, eventually.
Another perspective on risk
“Therefore I tell you, do not be anxious about your life …which of you by being anxious can add a single hour to his span of life? …seek first the kingdom of God and his righteousness …Therefore do not be anxious about tomorrow, for tomorrow will be anxious for itself. Sufficient for the day is its own trouble.”
— Matthew 6:25-34.
For More Information
The photo of Nassim Nicholas Taleb is posted from his website with permission.
For more of Taleb’s work see his website, especially papers in the Doing Statistics Under Fat Tails Program. Also see his entry on wikipedia.
Please like us on Facebook and follow us on Twitter. For more information see The keys to understanding climate change, My posts about climate change, all posts about shockwaves (high impact, low probability scenarios), and especially these …
- We are so vulnerable to so many things. What is the best response?
- Preparing for the future: should we be precautionary or proactionary?
- The first step to protecting the world from its many dangers.
See Taleb’s books, especially The Black Swan: The Impact of the Highly Improbable (2010) and Antifragile: Things That Gain from Disorder (2012).
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Taleb had a run in with the UK leftist news outlet, The Guardian. Regarding harmless comments which he made on the topic of climate change. The Guardian launches an attack upon any person who does not prostrate weeping before the altar of extreme climate alarm.
Therefore they attack even Lomborg, who agrees with climate consensus but disagrees with some details of leftist policy prescriptions.
Here is Taleb’s response:
http://www.huffingtonpost.com/nassim-nicholas-taleb/my-letter-addressing-the_b_270737.html
Excellent example of how the HP is an extreme left wing propaganda rag.
Funny enough the HP was started by a woman on the mild right who was concerned about the bad effects of drug prohibition. She couldn’t find an audience for that on the right and went full left. I corresponded with her some when she was doing her drug policy conferences. A little before HP IIRC.
The “Precautionary Priciple” seems to be a means of favoring anyone who develops the scariest scenario, despite the odds against that scenario ever actually happening. So far, all the objections to GMO foods are unfounded in practice, but that has no influence on their promoters.
Unless the big players of the insurance industry can’t wait to drop tons of money into this guy’s lap, excuse me if I just yawn and go for a nap.
Let’s apply the same logic to the individual. Death is a “ruin” event. It should be defended against “at all costs”. Driving is risky. Therefore don’t drive. Pedestrians get run over. Therefore don’t leave the house.
The problem with Taleb’s prescription is that we can imagine far more than we can reliably quantify, and even then we must live with risks.
Useless.
I can imagine many risks and catastrophes.
Of course the answer is to have prosperity and keep evolving technology. As we do.
Not to waste resources in fades of the day.
Nassim and Larry. A direct hit by a huge bolide should be ruled out because whatever we spend on precautions, life on the planet is definitely going to have to start over from small beginnings again. Maybe a secret mission to move a few thousand people and plants to Mars or someplace is all we could do if the idea is to maintain human existence. The planet? not much can be done in advance. All the other things you guys and legions of others waste your lives, careers and our cash on, just do not happen. I have formulated this previously in comments as an axiom.
Disasters are at Worst only Local Matters
Prelude:
Imagination is in very short supply, residing in a few percent of the population. All failures for doom scenarios to come to pass are the same. They don’t take into consideration technology and the genius of the few percent who are problem solvers in this world. They are preselected in their education and all avoid technology as a discipline. This is why it is difficult to recruit engineers into the Kumbaya throng.
The diplomas of doom mongers give them the appearance of experts on biosphere affairs, but, by excluding (unwittingly) the dynamism of human ingenuity from their purview, their universe is static and passive. They have studied animals and plants that behave predictably the same. Oh, if I want to know how many tigers there are in the forest, I will call on them. They will collect the poops and all the other things they do and will give me a fairly reliable picture of the tiger’s numbers, situation, health, diet,….But, how can this give them expertise greater than that of the butcher, the baker and the candlestick maker to give us a prediction of famines (Club of Rome), city burials in horse manure (Malthus), pollution, the climate, etc. (too numerous to list).
Hundreds of years of doomsayers have NEVER, EVER been right. Most are arise from misanthropic personality disorders. All are simplistic in their thinking and divine the future mainly from, naïve, linear minds (how compelling and obvious the population problem is to them). The few percent, whose panorama includes human ingenuity in their purview, know how foolish it is to try to predict such things.
It is AXIOMATIC THAT PREDICTIONS FROM DOOMSTERS HAVE NOT AND, I WOULD SAY CANNOT COME TRUE because of the missing dynamic ingenuity factor in their thinking. Unconstrained by this first order principal component, their thoughts (and heartfelt concerns) soar through the roof of reality. The real scary thing is the inevitable additional confounding factor of unexpected consequences that abound in any action that might be designed by (linear thinking) doomsters.
Sorry Larry and Nassim, this dog will never hunt.
Mod, I don’t think I used any incendiary words?
There’s a plethora of as yet unknown potential system wide catastrophes, threatening with complete ruin and having essentially zero probability, but non-zero uncertainty. As a matter of fact unknown things are of course uncertain. Events like this are not even enumerable, so protection against them is impossible within the system, not even possible at “all costs”.
Under these circumstances the only solution is to redefine the “system”, to make global catastrophes no longer system wide ones. Therefore the precautionary principle dictates we spread to self sustaining colonies in space, to other stars, other galaxies and beyond at “all costs” as soon as practicable. This way even unknown global events cease to threaten with complete ruin, so risk analysis becomes possible again, with finite (albeit large) costs all over the map.
That move can only be facilitated by swift technological progress, so whatever hinders technology, defies the precautionary principle. Q.E.D.
The Precautionary Principle is self contradictory. IMO.
From what I’ve gathered, a ‘Carrington Event’ level solar magnetic storm could utterly devastate our electricity distribution systems, as could a single EMP type nuclear device, which would result in truly horrific consequences. And it seems that roughly two billion dollars could provide protection (for the US) such that most of the system could be spared and/or restored reasonably quickly . .
The Gov/Military and some locals are prepared . . so to speak, but the Feds don’t seem to consider it a big priority to make a (relatively small, it seems to me) investment of our own monies to provide for our own survival in the event of such a blatantly obvious real threat manifesting . . Just between you and me, it makes me wonder if Big Brother really is my friend . . ; )
Taleb knows no more about the future climate than a village idiot.
In fact, he may know less than a village idiot — a village idiot is likely to say “I don’t know”, while Taleb does not know those words.
The climate in 2016 is wonderful, compared to what is known about the climate in the past 4.5 billion years.
Carbon dioxide does not control our planet’s climate, and never has.
The future climate is unknown, and unknowable.
These simple thoughts are way over the head of a self-proclaimed “genius” like Taleb.
His 2007 Black Swan book is grossly overrated.
I own a copy, and have read it.
It seems like one decent chapter expanded into a book with a lot of “filler”
Lucky timing when it was published.
Takleb had a decent book titled “Fooled By Randomness” in 2001.
I have no idea what happened to his mind since then.
He is going downhill.
Perhaps fame has gone to his head.
He certainly has a high opinion of himself.
“Taleb knows no more about the future climate than a village idiot.”
And at the same time he recognizes that climate models are not reliable. It’s pretty bizarre.
It’s easy to see when someone else’s predictions were wrong — especially after observing 40 years of inaccurate climate model predictions — and claim the climate models don’t work.
But still very hard to predict the future when you don’t know exactly what causes climate change.
In addition, no regular climate cycles have been discovered to allow us to “predict the future” by merely assuming the cycle will indefinitely repeat.
I suggest flipping a coin.
I had to go to the “shockwaves” link and wayyy down the page found “space weather”. Well a CME strong enough to knock out our electrical and communications grids is not a rare event of low probability at all. In fact, it could happen tomorrow, and we have absolutely no way of predicting it. We have less than 200 years of historical records regarding such events to estimate frequency or magnitude.
BUT, this is something humanity can prepare for, and more effectively and economically than for major asteroid strike, for which we have records going back millions of years. Admittedly, this would not necessarily extinguish the human species, but it could very well cause us to lose all of the learning and technology we’ve accumulated over the past several thousand years, and leave only savage cannibals as survivors. I personally consider that prospect more dreadful than simple extinction.
But of course, the preparations required run counter to the precepts of “globalization” and “just in time” production and distribution, which dictate that everything must be produced and distributed in the most “economical” manner, and most importantly, that the process of stretching the net of commerce ever wider must never be interrupted.
I’m hoping there are still some governments in the world that value the survival of our civilization higher than their GDP. Research into the minimal population size and infrastructure required to maintain some semblance of our current civilization, at least enough to educate the survivers to utilize the artifacts and documents that survive, would be a good start, together with a plan for providing the food, water, and medicine needed to keep such a population alive and functional.
But maybe the “1%” already have this in hand, possibly with a location somewhere in Patagonia, and sailing yachts in which to get there.
Frederick Colbourne July 11, 2016 at 11:12 pm
“I first studied Mr Taleb’s theories as applied to financial markets. The idea is that trading profits can be gained by assuming that extreme events are more frequent than the markets expect.
To extrapolate the theory to a general theory of risk of ruin seems to me to be over-ambitious. Most distributions generated by mankind and in nature are not normal distributions. Besides, so many phenomena scale fractally.”
Like Mr. Colbourne I first became aware of Mr. Taleb through the financial markets when a friend pointed out that some of the conclusions that I had reached in a short article were covered in The Black Swan. Perhaps because we both came to Taleb through finance I firmly concur with Mr. Colbourne’s conclusion.
If I may be permitted a digression, my own experience of the Precautionary Principle was not fortunate. A shallow stream with deep banks flowed by the side of public playing fields close to a children’s park. Because of the danger that children could fall into the stream a very expensive fence was built on the bank of the stream. When a child eventually found a way under this fence it took rescuers more than ten minutes to reach him and the boy nearly drowned.
Removing the fence was almost as costly as installing it.