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

Peter Hammond

A chapter in The Economics of the Global Environment, 2016, pp 17-38 from Springer

Abstract: 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.

Keywords: Decision Theory; Expected Utility; Subjective Probability; Black Swan; Consequence Domain (search for similar items in EconPapers)
Date: 2016
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Related works:
Working Paper: Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis? (2015)
Working Paper: Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis? (2015)
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DOI: 10.1007/978-3-319-31943-8_2

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