Coping with Catastrophic Risks

One year after the Indian Ocean tsunami, what are the lessons? The biggest one is that it was the type of disaster to which policymakers pay too little attention – one that has a very low or unknown probability of occurring, but that creates enormous losses if it does occur. Great as the death toll, physical and emotional suffering of survivors, and property damage caused by the tsunami were, even greater losses could be inflicted by other disasters of low (but not negligible), or unknown, probability.

For example, the asteroid that exploded above Siberia in 1908 with the force of a hydrogen bomb might have killed millions of people had it exploded above a major city. Yet that asteroid was only about 200 feet in diameter. A much larger one (among the thousands of dangerously large asteroids in orbits that intersect the earth’s) could strike the earth and cause the total extinction of the human race through a combination of shock waves, fire, tsunamis, and blockage of sunlight, wherever it struck.

Other catastrophic risks include natural epidemics (the 1918-1919 Spanish influenza killed between 20 million and 40 million people), nuclear or biological attacks by terrorists, certain types of lab accidents, and abrupt global warming. The probability of catastrophes, whether intentional or not, resulting from human activity appears to be increasing because of the rapidity and direction of technological advances.

The fact that a catastrophe is unlikely to occur is not a rational justification for ignoring the risk of its occurrence. Suppose that a tsunami as destructive as the one in the Indian Ocean last year occurs on average once a century and kills 250,000 people. That is an average of 2,500 deaths per year. If such a toll could be substantially reduced at moderate cost, the investment would be worthwhile.

Educating residents of low-lying coastal areas about the warning signs of a tsunami (tremors and a sudden recession in the ocean), establishing a warning system involving emergency broadcasts, telephoned warnings, and air-raid-type sirens, and improving emergency response systems would have saved many who were killed by the Indian Ocean tsunami. At the same time, the cost would have been well below any reasonable estimate of the average losses that can be expected from tsunamis.

There are several reasons why such measures weren’t taken in anticipation of a tsunami on the scale that occurred. First, although a once-in-a-century event is as likely to occur at the beginning of the century as at any other time, it is much less likely to occur in the first decade of the century than later. Politicians with limited terms of office and thus foreshortened political horizons are likely to discount low-risk disaster possibilities, since the risk of damage to their careers from failing to take precautionary measures is truncated.

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Second, to the extent that effective precautions require governmental action, the fact that government is a centralized system of control makes it difficult for officials to respond to the full spectrum of possible risks against which cost-justified measures might be taken. Given the variety of matters to which they must attend, officials are likely to have a high threshold of attention below which risks are ignored.

Third, where risks are regional or global rather than local, many national governments, especially in poorer and smaller countries, may drag their heels in the hope that larger and richer countries will bear the costs of addressing them. Knowing this, larger and richer countries may be reluctant to take precautionary measures, as this would reward and thus encourage “free riding.”

Fourth, countries are poor often because of weak, inefficient, or corrupt government, characteristics that may disable them from taking cost-justified precautions. And the difficulty people everywhere have in thinking in terms of probabilities – especially low probabilities, which they tend to write off – weakens political support for incurring the costs of taking precautionary measures.

An even more dramatic example of neglect of low-probability/high-cost risks is the danger of an asteroid strike, which is analytically similar to the menace of tsunamis. Indeed, in part because tsunamis are one of the risks of an asteroid collision, the Indian Ocean disaster has stimulated new interest in asteroid defense.

Deflecting an asteroid from its orbit when it is still hundreds of millions of miles from Earth is a feasible undertaking. Nevertheless, in the United States, the National Aeronautics and Space Administration (NASA) spends only $4 million of its annual budget of more than $10 billion on mapping dangerously close large asteroids. At the current rate, NASA may not complete the task for another decade, even though such mapping is the key to an asteroid defense because it may give us years of warning.

The fact that a disaster of a particular type has not occurred recently or even within human memory (or even ever) is a bad reason to ignore it. The risk may be slight, but if the consequences should it materialize are great enough, the expected cost of disaster may be sufficient to warrant defensive measures.

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