Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis?
Catastrophic risk, rare events, and black swans are phenomena that require special attention in normative decision theory. Several papers by Chichilnisky integrate them into a single framework with finitely additive subjective probabilities. Some precursors include: (i) following Jones-Lee (1974), undefined willingness to pay to avoid catastrophic risk; (ii) following Rényi (1955, 1956) and many successors, rare events whose probability is infinitesimal. Also, when rationality is bounded, enlivened decision trees can represent a dynamic process involving successively unforeseen "true black swan" events. One conjectures that a different integrated framework could be developed to include these three phenomena while preserving countably additive probabilities. JEL classification:
Year of publication: |
2015
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Authors: | Hammond, Peter |
Institutions: | Department of Economics, University of Warwick |
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