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Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis?

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The Economics of the Global Environment

Part of the book series: Studies in Economic Theory ((ECON.THEORY,volume 29))

Abstract

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.

2015 May 1st, typeset from pjhForAFOSR2.tex.

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Notes

  1. 1.

    See Neveu’s (1965, p. 82) significant generalization of Kolmogorov’s extension theorem, as described in Aliprantis and Border (1994, Sect. 14.6).

  2. 2.

    The following brief extracts are from http://www.phinnweb.org/links/literature/borges/aleph.html, which reproduces the English translation on which Norman Thomas Di Giovanni collaborated with Borges himself.

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Acknowledgements

Generous support during 2007–10 from a Marie Curie Chair funded by the European Commission under contract number MEXC-CT-2006-041121 is gratefully acknowledged. So is the opportunity to present this work at the AFOSR (Air Force Office of Scientific Research) workshop on Catastrophic Risk, organized by Graciela Chichilnisky, and held at SRI, Menlo Park, California, on May 31st and June 1st, 2012. Some of the material on black swans is adapted from the earlier informal online publication Hammond (2009).

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Authors and Affiliations

  1. Department of Economics and CAGE (Centre for Competitive Advantage in the Global Economy), University of Warwick, Coventry, CV4 7AL, UK

    Peter J. Hammond

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  1. Peter J. Hammond
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Correspondence to Peter J. Hammond .

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Editors and Affiliations

  1. Columbia University, New York, New York, USA

    Graciela Chichilnisky

  2. Department of Socio-Economics, Vienna University of Economics and Business, Vienna, Austria

    Armon Rezai

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Hammond, P.J. (2016). Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis?. In: Chichilnisky, G., Rezai, A. (eds) The Economics of the Global Environment. Studies in Economic Theory, vol 29. Springer, Cham. https://doi.org/10.1007/978-3-319-31943-8_2

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