[tt] [x-risk] Weitzman on the "bad fat tail" of climate change risks

[Eugen Leitl]

----- Forwarded message from "Hughes, James J." <James.Hughes at trincoll.edu> -----

From: "Hughes, James J." <James.Hughes at trincoll.edu>
Date: Mon, 21 Jul 2008 09:45:39 -0400
To: existential at transhumanism.org
Subject: [x-risk] Weitzman on the "bad fat tail" of climate change risks
Reply-To: For discussion of existential risks <existential at transhumanism.org>

An argument that the IPCC estimates of damage under-estimate the overall
risk because the risks at the high end of the distribution of
possibility (meters of sea level rise and 8+ degrees of temperature rise
etc.) have such catastrophic risks that those risks dominate to total
risk assessment, and need to be prepared for even though low likelihood.
- J.

http://www.economics.harvard.edu/faculty/weitzman/files/REStatFINAL.pdf

On Modeling and Interpreting the Economics of Catastrophic Climate
Change

Martin L. Weitzman

REStat FINAL Version July 7, 2008

Abstract

With climate change as a prototype example, this paper analyzes the
implications of structural uncertainty for the economics of
low-probability high-impact catastrophes. Even when updated by Bayesian
learning, uncertain structural parameters induce a critical
"tail-fattening" of posterior-predictive distributions. Such fattened
tails have strong implications for situations, like climate change,
where a catastrophe is theoretically possible because prior knowledge
cannot place sufficiently narrow bounds on overall damages. This paper
shows that the economic consequences of fat-tailed structural
uncertainty (along with unsureness about high-temperature damages) can
readily outweigh the effects of discounting in climate-change policy
analysis.

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