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.