black swan events

The Possibility Effect

Unlikely events hardly figure in our minds, until they actually happen.

Last week as I was preparing for a visit to my folks in Manila over the Christmas holidays, the news on the storm that hit the southern Philippines recorded about a hundred deaths. By the time I landed, the toll had gone up ten fold due to landslides.

If I was told before hand that the chances of death should a heavy typhoon strike the island of Mindanao was .004 of a percent, I would have disregarded it. But that actually translates to 900 deaths in a population of twenty one and a half million in the south, which is what has happened so far.

The fact that the weather pattern is quite mild there makes policy makers discount the risks and allows them to permit activities like mining, logging and human settlement with ease prior to the event. I say that because these things slip under the radar of the media and the public at large.

It only takes a severe disturbance that was Typhoon Sendong to alert us to the possibility of such an event and the negative impact that comes with it. Immediately afterwards, we all become overly cautious, and the tendency is to overestimate the occurrence of it. We become risk averse. After some time, the memory of it fades and we return to a state of indifference.

The shifting nature of our psyche makes it incumbent for government to have risk policies in place to deal with unique or unlikely events. We often go from one extreme to the next, alternating between indifference to hyper vigilance, from policies that disregard environmental damage to ones that absolutely restrict any form of economic activity for fear of the risks involved.

Risk policies would help to provide a rational global assessment of risks and the impacts involved and prepare us for such “black swan” events through regulations that minimize the environmental impact of economic activities to disaster preparedness to cope with any threat and its aftermath.

As I blogged earlier around the middle of this year, the risks are already quite substantial due to climate change and overpopulation in vulnerable locations. Here, for the benefit of those who missed it is an excerpt from what I previously posted ,

The Center for Global Development has tried to quantify the effects of severe weather events. In its report, the country ranks 4th most vulnerable country in the world to be directly impacted by extreme weather events. We are ranked below China (1st), India (2nd) and Bangladesh (3rd). If you consult their working paper on the effects of these events, you will find out what that means for the population.

Between 2008 and 2015, the likelihood of severe weather events is placed at 58%. While the impact of these disturbances can be mitigated through higher income and better regulations, about 5% of the total population could suffer. With our population expected to rise above 100 million in the next five years, that means about 5 million Filipinos will be in need of some form of assistance from natural disasters.

I guess, when you read something like that in the abstract, it doesn’t quite hit you as hard as when you read it in the wake of such devastation as we have witnessed recently. Despite the charitable giving from locals and the international community, the government’s response in the form of policies and resources will still be critical.