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By Root 1069 0

aspects, but supposedly unlikely events determined some of the more negative developments. When modeling the reliability of financial instruments, most applied the data for the previous few years without allowing for the possibility that the economy might turn down, or turn down at a far more dramatic rate. Assessments about whether to regulate financial instruments were based on a short time frame during which markets had only increased. Even when the possibility of a market drop was admitted, the assumed values for the drop were too low to accurately predict the true cost of lack of regulation to the economy. Virtually no one paid attention to the “unlikely” events that precipitated the crisis. Risks that might otherwise have been apparent therefore never came up for consideration. But even unlikely events need to be considered when they can have significant enough impact.45

Any risk assessment is plagued by the difficulty of evaluating the risk that the underlying assumptions are incorrect. Without such estimates, any estimate becomes subject to intrinsic prejudices. On top of the calculational problems and hidden prejudices buried in these underlying assumptions, many practical policy decisions involve unknown unknowns—factors that can’t be or haven’t been anticipated. Sometimes we simply can’t foresee the precise unlikely event that will cause trouble. This can make any prediction attempts—that will inevitably fail to factor in these unknowns—completely moot.

MITIGATING RISK

Luckily for our search for understanding, we are extremely certain that the probability of producing dangerous black holes is minuscule. We don’t know the precise numerical probability for a catastrophic outcome, but we don’t need to because it’s so negligible. Any event that won’t happen even once in the lifetime of the universe can be safely ignored.

More generally, however, quantifying an acceptable level of risk is extremely difficult. We clearly want to avoid major risks altogether—anything that endangers life, the planet, or anything we hold dear. With risks we can tolerate, we want a way of evaluating who benefits and who stands to lose, and to have a system that would evaluate and anticipate risks accordingly.

The risk analyst Joe Fragola’s comment to me about climate change, along with other potential dangers he is concerned with, was the following: “The real issue is not if these could happen, nor what their consequences would be, but rather what is their probability of occurrence and the associated uncertainty? And how much of our global resources should we allocate to address such risks based not only on the probability of occurrence but also on the probability that we might do something to mitigate them?”

Regulators often rely on so-called cost-benefit analysis to evaluate risk and determine how to deal with it. On the surface, the idea sounds simple enough. Calculate how much you need to pay versus the benefit and see if the proposed change is worth it. This might even be the best available procedure in many circumstances, but it might also dangerously generate a deceptive patina of mathematical rigor. In practice, cost-benefit analysis can be very hard to do. The problems involve not just measuring cost and benefit, which can be a challenge, but defining what we mean by cost and benefit in the first place. Many hypothetical situations involve too many unknowns to reliably calculate either, or to calculate risk in the first place. We can certainly try, but these uncertainties need to be accounted for—or at least recognized.

A sensible system that anticipates costs and risks in the near term and in the future would certainly be useful. But not all trade-offs can even be evaluated solely according to their cost. What if that which is at risk can’t be replaced at all?46 Had the creation of an Earth-eating black hole by the LHC been something that could happen with reasonable probability within our lifetime, or even within a million years, we certainly would have pulled the plug.

And even though we ultimately benefit quite a bit