The earthquake and tsunami that battered Japan's northern Honshu island remind us about the shock and subsequent impact of black swan events. Japan's disciplined preparation for seismic activity, while mitigating a greater disaster, was still no match for the uncontrollable power of nature. Further, the ominous closure of two coastal nuclear power plants suggest the potential for an environmental catastrophe far more enduring than the tsunami's awesome, ghastly impact.The cult of data does not like, and cannot manage, black swan events. It was curious to read how one scientist characterized something as a "low probability, high consequence" event. The consequence, in his example, was highly a highly negative one. Black swan events have a way of changing the course of history, and are entirely outside the control of the reigning power structures. In the case of the Japanese earthquake, the episode may derail the nation's economic growth. If that becomes true, the world's second leading purchaser of US Treasury issues may have to scale back its buying. That means there will be greater pressure on the American economy, and fewer ways to gain relief from it.
Do you think the Japanese earthquake represents a black swan event? Comments are welcome. In the meantime, I extend my sympathies to the Japanese people in this desperate hour.
The methods employed to mitigate against nuclear disaster remind me of Taleb's discussion about Casino security in The Black Swan. The one vulnerability exposed by the disaster fell outside the risk management systems put in place.
ReplyDeleteI had Taleb's metaphorical point in mind when I wrote this post. As a layperson in matters mathematical, I can't fully grasp the nuances of risk management systems. I have a healthy respect for them, but I'm also a firm believer that every system has its Achilles heel.
ReplyDeleteThe French government has suggested its expats in Japan leave the Tokyo area. That's very grim news, as the French understand nuclear energy and its issues. ASN, the French government's nuclear agency, has publicly compared the Fukushima incident to Three Mile Island.