Sunday, March 27, 2011

What Lessons Do We Learn from Disasters?

We know that there is always a "silver lining" of disasters.  At a minimum, new government jobs are created as the public demands "action"  and somebody must co-ordinate the rebuilding efforts.   Whether the shock is the Moscow Heat Wave of 2010, 2005 Katrina or 2011 Northern Japan, how much do we update our prior beliefs in response to a very salient shock?  Permit me to offer some quotes from this article.

"We can only work on precedent, and there was no precedent,” said Tsuneo Futami, a former Tokyo Electric nuclear engineer who was the director of Fukushima Daiichi in the late 1990s. “When I headed the plant, the thought of a tsunami never crossed my mind.”

This is a fascinating quote.  Mr. Daiichi is implicitly saying that based on his sampling of history that the probability of a Tsunami affecting his power plant was 0%.  This sounds a little like Wall Street in 2008.  In that case, what was the probability that all U.S local housing markets declined in value at the same time? It had never happened before so it couldn't happen.

For those who care about adapting to climate change, this is fascinating stuff.  Climate change is likely to raise the probability of very unlikely nasty events.   If these events used to be a 1 in ten million chance of taking place and now they are a 1 in 100,000 chance of taking place,  then there will be protective investments that will pass a "cost/benefit" test that could be invested in.

"For some experts, the underestimate of the tsunami threat at Fukushima is frustratingly reminiscent of the earthquake — this time with no tsunami — in July 2007 that struck Kashiwazaki, a Tokyo Electric nuclear plant on Japan’s western coast.. The ground at Kashiwazaki shook as much as two and a half times the maximum intensity envisioned in the plant’s design, prompting upgrades at the plant.

“They had years to prepare at that point, after Kashiwazaki, and I am seeing the same thing at Fukushima,” said Peter Yanev, an expert in seismic risk assessment based in California, who has studied Fukushima for the United States Nuclear Regulatory Commission and the Energy Department.
There is no doubt that when Fukushima was designed, seismology and its intersection with the structural engineering of nuclear power plants was in its infancy, said Hiroyuki Aoyama, 78, an expert on the quake resistance of nuclear plants who has served on Japanese government panels. Engineers employed a lot of guesswork, adopting a standard that structures inside nuclear plants should have three times the quake resistance of general buildings."

So, in the aftermath of a disaster --- how do risk regulators recalibrate their subjective risk assessments? Do they tend to "over-react"?

The adaptive process involves both government self-protection investments and private sector investments.  Will people choose to live close to such plants and in such coastal locations?  What materials will they build their homes out of as they rebuild?  The media is reporting that concrete homes in the Tsunami zone survived the disaster with much less damage than wood homes.  How will this lesson affect the rebuilding effort?

Returning to climate change adaptation, the key issue here is subjective risk assessment.  For voters and day to day citizens, do salient disasters shock people into changing their lifestyles so that they are protected from the next disaster? In the case of the Moscow Heat Wave of 2010, I am sure that this will stimulate air conditioner sales so that next summer's Moscow Heat will cause much less suffering.  Does this optimism hold more broadly? Or are we doomed to make the same mistakes over and over again because we do not learn?

Economists are sure that people do learn from their mistakes and increased fat tail risk offers a fascinating test of this optimism.  In my 2010 book Climatopolis,  I present a "Chicago" free markets and rational expectations case that our entrepreneurs and our insurance industry have incentives to think ahead and anticipate fat tail risk.  This risk creates opportunities and challenges for them. I talk in the book about the behavioral economics world view and its implications for anticipating our ability to adapt to climate change.  Now, this doesn't mean that we have "perfect information".  Instead, rational households and firms recognize that they face a moving target and "know that they don't know" the likelihood of future states of the world. Anticipating this ambiguity, there are actions they can take today to protect themselves that are likely to be cost-effective.   Companies that can figure out new products that reduce risk exposure are likely to become rich in our hotter future.  


Robert said...

Hey stupid, haven't you people heard yet that this climate change story is a fraud?

People aren't buying into this bunk anymore. Start reporting the truth for once.

Living Wood Flutes said...

climate change had absolutely nothing to do with the earth quakes and tsunami in Japan! That is a globalist agenda question. Climate change is also a farse,man has nothing to do with climate change and can not stop it. It is happening on every planet in our solar system. And carbon dioxide is NEEDED for life to be sustained on this globe, it's what the trees and plant life need and what we exhale. plant more trees you boobs!

rick said...

Right on. I am sick of the main stream media (brainwashed ignorant or both) still riding the long dead horse of global warming.

pf said...

Piggybacking a climate change agenda on an earthquake and tsunami is lame.

BTW, if global warming can reduce the chance of a future ice age, them I'm all for it.

don.white said...

The Climate Change advocates are getting pretty desperate to try compare the disaster in Japan to Global Climate change.

This further erodes any possible credibility that the warming argument had.

Why not talk about something that is a real problem?


Eric said...

global warmings now causes earth quakes? I'd like to hear more.

Doorsmith said...

This author is an idiot

Alex del Castillo said...

Funny, I was about to make some comment to the effect of... "so, climate change causes tsunamis now! Fascinating!"

But I guess several people had the same idea.


Shakti said...

Maybe I am not smart enough but what does climate changes have to do with the natural tectonic movement of plates on this Earth? How did you get the Christian Science Monitor to allow you to publish as a guest blogger on this topic being an economist?

stan said...

The GE reactor needs more than Batteries for cooling it needs 2,800 extension cords, and several diesel, gas, natural gas, back up generators. Really, what a stupid machine.... There is no Climate change, the only change is we will run out of oil

Nomi said...

:We know that there is always a "silver lining" of disasters."

Ah... Ok...only if the silver lining is that we got smart enough to close down all of the other nuke plants before this happens again.

Mark Slovacek said...
This comment has been removed by the author.
ogden said...

Wow. Just... wow. How disgusting are the proponents of this AGW "theory"... that you would exploit a humanitarian catastrophe such as this to further your own political agenda?

Good thing the general population is now fully aware of this type of behavior, and can see right through it.

The real irony here is that the same people who claim CO2 is a deadly danger to humanity, are simultaneously promoting nuclear power as a "green" alternative. I have never heard a more insane notion.

I would much rather have CO2 in the atmosphere than Cesium, Strontium, Uranium, Plutonium and Iodine-131.

You also don't seem to have any problem with GMO crops, which pose a very legitimate threat to the sustainability of the biosphere.

You eco-fascists won't be satisfied until everyone is dead, will you?

Real environmentalists should be lobbying against nuclear power and GMO, not against CO2, which the Earth needs MORE of right now.

investor68 said...

It's NOT TRUE that nobody knew that the plant is not safe.

'Warnings about the safety of nuclear power plants in Japan, one of the most seismologically active countries in the world, were raised during a meeting of the G8's Nuclear Safety and Security Group in Tokyo in 2008...

...The cables also disclose how the Japanese government opposed a court order to shut down another nuclear power plant in western Japan because of concerns it could not withstand powerful earthquakes.

The court ruled that there was a possibility local people might be exposed to radiation if there was an accident at the plant, which was built to out of date specifications and only to withstand a "6.5 magnitude" earthquake. Last Friday's earthquake, 81 miles off the shore of Japan, was a magnitude 9.0 tremor.'

douglas said...

Wow! These are some pretty emotional comments. Interesting to point out though, that the article didn't try to make a connection between global warming and earthquakes, said nothing about GMO crops, and made no comment on the merits or problems of nuclear power in general. The article, by an economist, was about the relative interest in investments as they relate to disasters, so I can only assume that you all either didn't understand the article, or did and used it as an excuse to talk about your own agendas anyway.

rob said...

Climate change, as pointed out, is a emerging issue that is generally accepted to impact the cost benefit analysis associated with engineering projects in zones that climate change is making riskier for this type of construction, such as coastal ones. The other risk implicit in making cost benefit calculations specific to nuclear power generation sites comes as we decide the overall value of alternatives to coal powered generation. Democracy Now had a excellent debate today regarding what's riskier, focusing on coal powered projects and increasing climate change, or focusing on nuclear project to ameliorate the CO2 emissions of coal and risking future accidents like Fukushima. A real Sophies choice, but one we'd all do well to consider now!

james said...

Watch a Pre-January 8th copy of Inception. Listen closely when the actors say imagine, reality, safe, and envelope, or point pistols. You'll hear the words, Loughner, offin' her, part of the word Giffords, and much more. Some say they hear, do it.

john said...

What a load! The Earth has been cooling for some time. Climate gate at East Anglia finally exposed the GW agenda of rigging a consensus, falsifying data to promote a global tax to be paid to the World bank. All of the 1000+ leaked emails can be downloaded and read. And besides, what does Co2 have to do with Earthquakes? They are getting real sloppy with their BS.

keith said...

You've got to be kidding. Anyone who still believes the "climate change" lie is a fool. Do some research!

Tom said...

Okay. For those of you who don't believe in climate change: Let's take just two facts.
1. Just 350 years ago we humans didn't know about oil and gas (didn't drill the first well until the mid 1800s), and got around only by foot, horseback, carriage or wind-powered sailing ships. No electricity, no engines, no trains, planes or automobiles, nothing that burned oil or gas. Perhaps a little hand dug coal in the fireplace, candles and whale oil lamps for light, that was all.
2. In 1650 the estimated world population was only half a billion people.
Now the world is totally different - 6.7 billion people (13 times as many) on the planet, many of us using cars, planes, trains, electric lights, cloths dryers - you name it. All this takes huge amounts of power. Where does that power come from? Burning coal, oil, or gas. What is the primary byproduct of that burning? Carbon Dioxide. So in 350 years we humans have gone from putting very little CO2 into the atmosphere to adding,
in 2007 alone, an estimated 29,321,302,000 metric tons (Wikipedia), or almost 60 trillion pounds of CO2! Let me emphasize, that’s for only one year!
If you ask me, that's got to have at least some effect!
For more, please see my blog at: