Tail Events

An interesting podcast about Iran and other security concerns.

The one thing I don't like is the idea that because event A has never happened, or hasn't happened in a long time, means that we shouldn't take action about event A. Perhaps, that's not what he's saying, and instead is saying that we're disproportionately worried about event A. Fair enough, but with something like terrorism, where we have no idea how often it's going to happen, it's a bit difficult to know how much action is too much, and how much action is too little.

There haven't been many CAT 5 hurricanes in Maine, but we (as insurance companies) price for such events. Why is that, because we have 10,000 years of geological data, to get an idea as to how frequent they occur, and price accordingly. There aren't really 10,000 years of terrorism to really set a "price" for the risk. Certainly not with nuclear weapons, etc.