A Precautionary Tale of Uncertain Tail Fattening

Martin Weitzman

No 18144, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Suppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.

JEL-codes: Q5 Q54 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-ban
Note: EEE
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Published as Martin Weitzman, 2013. "A Precautionary Tale of Uncertain Tail Fattening," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(2), pages 159-173, June.

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Journal Article: A Precautionary Tale of Uncertain Tail Fattening (2013)
Working Paper: A Precautionary Tale of Uncertain Tail Fattening (2013)
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