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

Peter Hammond

No 270223, Economic Research Papers from University of Warwick - Department of Economics

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 R´enyi (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: Financial; Economics (search for similar items in EconPapers)
Pages: 29
Date: 2015-05-01
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Related works:
Chapter: Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis? (2016)
Working Paper: Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis? (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:270223

DOI: 10.22004/ag.econ.270223

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