Tuesday, March 15, 2011

Risk and reward

Well, forget the reward bit.

The disaster in Japan, coming on top of the financial disaster of a couple of years back, says something about the way we manage risk. In the case of finance, economic models and political influence led us to adopt a model of regulation that opened up the possibility for catastrophe (and in case you think no-one realized, and that we were dealing with unknown unknowns, see this piece by Susan Strange written over 10 years ago -  link courtesy of Mlada Bukovansky).

In the case of nuclear energy, a number of experts have been confidently pushing the industry on the grounds that it is safe and clean. And if we know what the risks of environmental shocks are, and can factor in redundancy to compensate for human error, that may be true. But the Japanese scenario suggests our risk assessments contain a dose of wishful thinking. After all, Japan has a history of major earthquakes and tsunamis. If they can't design a nuclear plant to withstand predictable threats, then that's not a great sign that others will do any better.

Risk management could do with a more conservative approach (a la Pascal). We need to err on the side of avoiding the unthinkable, rather than risking the unthinkable just to get the desirable. To take the example of climate change: if we're wrong about man-made global warming, the worse that can happen is that we save energy and use less polluting ways of life for nothing. If the skeptics are wrong, Japan in March 2011 will look like a training exercise.