This is a slightly edited piece which I did for another project (here). It should be of interest to anyone interested in ecological systems and risk.
Nassim Nicholas Taleb recently appeared on EconTalk to discuss his recent paper: “The Precautionary Principle (with Applications to the Genetic Modification of Organisms)”. Many of the debates on the issue could be described as “data drenched”. What I mean is that the arguments circle around the available data, rather than on appropriate decision-making. Let’s take the example of human impact on the climate. Most environmentalists, climate scientists, and their allies point to a collection of data which they say gives conclusive proof that human impact on the climate will have damaging results. Skeptics dispute the data and say that political pressure has skewed the conclusions drawn from it.
Taleb’s view would be rather different. Climate is a complex and dynamic system. That being so, our data will almost certainly not be without error. The clearest example of this is the Global Warming Hiatus. Increased energy in the climate system has not been reflected in temperature rises – a phenomenon which most models were not able to predict. Skeptics and political conservatives have learned entirely the wrong lesson from this. The Hiatus does not mean that the earth’s system will be entirely able to cope with current changes. It means that our models are not good enough to predict these changes with a sufficient degree of accuracy.
The worst case scenarios include rising sea levels resulting in huge population displacement, increased conflict, economic decline, and damaged ecosystems. This likely isn’t a ruin event for the human species – eventually, those who adapt will be able to create stability. But it would cause the destruction of communities, impacted states, and ecosystems. The result is that even a small risk should motivate us to take actions which mitigate these threats.
In the case of GMO’s, Taleb et al are not convinced that we can safely determine what the long-run results of widespread use will be. In a worst-case scenario, they could make the global food system extremely fragile. One harmful enough blight spreading across food-producing countries, and billions of people could find that hunger and starvation is not so far off. The death and destruction this scenario entails would mean that our global political and economic systems will be caught up in a ruin event. Taleb’s point is simple: even a tiny non-zero possibility of such an outcome demands that we exercise the precautionary principle. This makes the event “fat-tailed”:
“…if I gather a thousand people randomly…to watch and weigh them, and then evidently have the total weights, and then you add to that sample the largest human being on the planet, that person will not represent more than .3% of the total. You see? But if you do the same with wealth, you will have one of the total–you will be maybe because you have a lot of people living on a few dollars a day on the planet, 7 billion people total population, you have 3 or 4 billion very poor people. So, odds are you have maybe a million and a half net worth for your sample. And then you add to that the richest person on the planet, $75 billion, and look what happens. There will be a rounding error. So it means fat tailed is how much the rare event contributes to the total.”
Ecological realism demands a focus on proper decision-making in addition to good data. Understanding the nature of fat tails and ruin events is a required fundamental.