Los Angeles' Mayor Anticipates One Fat Tail Event

How much do cities suffer from "fat tail" extreme events such as Hurricane Sandy or Katrina?  The LA Times reports today that the Mayor of LA is forming contingency plans for an ugly scenario where an earthquake in Los Angeles disrupts the aqueducts that carry water into the city.  The Mayor is seeking proposals that offer some "bang for the buck" in terms of reducing the probability of disaster per $ spent.   This is wise planning. How will he pay for this? Will the people of LA (including me) be grateful?   Here the key issue is keeping voters aware of what the actual probability of such fat tail events could be and what we would lose if such an event occurred and we were not ready for it.  A good economist would also ask whether the people of LA are risk lovers or risk averse or risk neutral.   Our ability to imagine our future is one key difference between us and other creatures. An active imagination leads to the search for solutions and means that we are not passive victims in the face of expected natural disaster risk.