Tag Archives: robust decision making

Reblog: Paul Brown on the “optimization trap” and innovation | MAVEN’S NOTEBOOK

Paul Brown talks about how chasing “optimization” is a fruitless distraction, which I happen to agree with. We should be focused on exploring the consequences of different pathways and how to mitigate significant vulnerabilities.

Source: WATER SMART INNOVATIONS: Speeding up innovation in the water industry | MAVEN’S NOTEBOOK | Water news

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Focus on uncertainty and risk in climate change

Unfortunately Alex Epstein, a blogger at Forbes, takes the wrong perspective–an underlying premise that we need absolute certainty that climate change is occurring before we should act. (And equally unfortunately, environmentalist argue that catastrophic climate change is occurring with absolute certainty to defend policy initiatives.)

The correct perspective is to ask “what are the relative risks and consequences posed by potential climate change?” Can we say with absolute certainty that GCC is not and will not occur? No, we have strong evidence that warming has occurred (although the rate can be disputed) and that various local climates have measurably changed (e.g., glaciers receding). As an analogy, would anyone argue that we shouldn’t take measures to reduce forest fire risks to communities even if fires aren’t burning nearby? We know that such fires are a strong risk, and we ask what actions are sufficient to reduce the risks while still achieving other objectives. We should be asking the same questions regarding responses to potential climate change.

Steve Moss and I wrote about this perspective in 1999 in Chapter 2 of this report. (Note that we did not coauthor the other chapters. Chapter 3 about the economic consequences of using carbon taxes to replace other tax revenues in particular is simply wrong.) Economists have evolved methodologies beyond the simple approach we presented there, such as robust decision making (RDM)real options analysis and “fat-tailed” uncertainty benefit-cost analysis. We face a great deal of uncertainty in many dimensions. We need to conduct more complete analyses that assess the potential costs and benefits under uncertainty–i.e., measure the risk of relative actions and non actions.

Simply having a battle over which scientists are correct is fruitless and distracts us from the real question at hand. Let’s agree that a large plurality of scientists have posed a plausible case for human-induced climate change, even if there are doubts about the potential magnitude and consequences. Then we can move on to what are the range of potential consequences and the justification for various responses.

Yet another misconstrued view of “economics” in the climate change debate

Charles Mann wrote an interesting review of several books on climate change in The Atlantic Monthly. He portrays the debate as “Environmentalists” vs. “Economists.”  Unfortunately he describes economists as relying entirely on using central tendency expected values in standard cost-benefit analyses. And he fails to give economists full credit for creating the cap and trade system that he praises as an effective means of generating the change that is required.

The fact is that many economists are changing the debate on climate change to focus on deep uncertainty, to assess the costs of unlikely but catastrophic outcomes, to design effective technology subsidies, and to focus California’s climate change policies on global goals. All of these are important innovations that are affecting the debate over how to address the risks of potential climate change.

It’s important to recognize that we need to decide to act without full knowledge about whether climate change is driven by human activity or will it be of sufficient consequence to affect our civilization. If we live in a forest and there’s risk from a distant fire, we assess whether we need to buy insurance, clear brush around our house or evacuate. The fire may never come to pass–in fact the probability may be quite low, but we know the catastrophic consequences if it arrives. Is acting now to address climate change risk, both mitigation or adaptation, worth it? Economists have the tools to address this question–the problem is that key individuals in the media such as Charles Mann don’t seem to be aware of these, and so neither does the public or decision makers.