Fat Tails and Climate Change: Catastrophic Failures in Risk Management, 5

Image courtesy of UNEP / click image for original

The phrase “fat tails” became familiar to some people after the storm broke in 2008’s global financial crisis. A fat tail refers to the probability and consequences of a possible event that is outside the bounds of our normal expectations, find as defined either by our prior experience or by accepted theories – for example, link theories of the behaviour of financial markets.1 More specifically, it refers to the probability of an adverse event (such as a financial crisis) that is both more likely to occur than is “normally” expected, and that if it should occur could have catastrophic dimensions. [See www.fattails.ca and the lovely 2010 animated graphics in The Economist: http://econ.st/n9xYZq.]

Fat Tails and Climate Change PDF

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Risk Management Cases: Drilling for Shale Gas

Image courtesy of 32BJ/Flickr

Environmental risks associated with drilling for shale gas, prescription and the extraction process known as “hydraulic fracturing” [“fracking”], are receiving a good deal of attention in Canada, the United States, and elsewhere.

The state of New York has had a moratorium on shale gas development for the past year, but Governor Mario Cuomo has recommended that it be lifted in favour of permitting activity in selected areas. The Province of Quebec now has a two-year moratorium in place and has indicated that further research will be required before it is known whether the environmental risks can be limited to acceptable levels.

Readers who are interested in this issue, especially those who live in or near areas where underground shale deposits may attract this activity, will be interested in the following current resources.

Shale Gas Drilling [PDF]

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Financial Risk: The World turned Upside Down

Image courtesy PIAZZA del POPOLO / Flickr

Here’s the latest from the Greek debt crisis:

“Europe is seeking to avoid a default at all cost because it could also initiate payment of credit-default swaps, there with unpredictable results. There is little public information on which financial institutions have sold credit-default swaps and might have to absorb losses if Greece defaulted, there but it is likely that American banks and insurance companies have taken on the largest share. The shock to the global economy might compare to the collapse of Lehman Brothers in 2008, illness the European Central Bank has warned.” (Jack Ewing & Landon Thomas Jr., “Europe faces tough road on effort to ease Greek debt,” The New York Times, 4 July 2011)

Wait a minute! In credit default swaps the first party pays a premium to a second party in order to “insure” the value of an amount invested in corporate or government bonds made by the first, and the second party guarantees to make up the shortfall if that investment loses value, for example where the issuers of the bonds default on their debt.* Derivatives such as credit default swaps are a risk management strategy for investors, protecting them (for a price) against large losses. So how does this very sensible risk mitigation strategy, used by individual investors, end up causing or exacerbating another broad financial crisis?

The World turned Upside Down

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Catastrophic Failures in Risk Management, 4: The Terrorist Attack on Air-India Flight 182

Image courtesy Corinna A. Carlson / Flickr

The month of June 2011 marks the first anniversary of the release of Air India Flight 182: A Canadian Tragedy, illness the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, troche headed by Mr. Justice John Major.

The mid-flight destruction of Flight 182 off the Irish coast on 23 June 1985 killed all 329 passengers and crew; an explosion at Narita Airport in Japan, which was part of the same terrorist plot, killed two baggage handlers there. The resulting toll represents, still today, the second-largest loss of life (second only to the September 11, 2001 events in the United States) in a single terrorist plot ever to occur anywhere in the world.

Catastrophic Failures in Risk Management 4 [PDF]

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Catastrophic Failures in Risk Management, 3: Blood Donation Risk and Gay Men

Image courtesy vincent0849 / Flickr

As we are now seeing in the long-running global financial crisis, decease the initial stages of catastrophic failures in risk management can have follow-on consequences over long periods of time. In the case of blood donation risk, the infection of blood recipients by the HIV and Hepatitis C viruses in many countries around the world, including Canada, in the 1980s was such a catastrophic failure. This risk is known as “transfusion-transmitted infection” (TTI). Full post here: Catastrophic Failures in Risk Management 3 [PDF]

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Catastrophic Failures in Risk Management, 2: The Never-Ending Global Financial Crisis

With increasing frequency comments on the ongoing sovereign debt crisis in Greece and the euro zone include a reference to the need to avoid a repeat of the collapse of the investment bank Lehman Brothers in September 2008. The basis for this otherwise puzzling comparison is the concept of “contagion,” that is, cascading failures in the financial sector – the “falling dominos scenario” – which once started with a single “event” cannot be halted, by any means currently at our disposal, until other (perhaps many other) large losses occur.

Full post here: Catastrophic Failures in Risk Management 2 [PDF]

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Blindsided by risk – presentation

Intergovernmental Forum on Risk Management 2011 Conference Board of Canada, Ottawa, May 2011 and the 3rd iNTeg-Risk Conference: “Risk vs. Risk” Stuttgart, Germany, June 2011. PDF version of slides here: Blindsided by Risk

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PPT presentation by Dr. Atsuo Kishimoto

Dr. Atsuo Kishimoto is a member of the Research Institute of Science for Safety and Sustainability (RISS), National Institute of Advanced Industrial Science and Technology (AIST) , Onogawa 16-1, Tsukuba 305-8569, Japan. This presentation was delivered at the iNTeg-Risk Annual Conference, 7-8 June 2011, in Stuttgart, Germany and is made available here with the kind permission of Dr. Kishimoto:

Atsuo Kishimoto, “Risk governance deficits in the multiple risk situation: The Great East Japan Earthquake, Tsunami, and Fukushima nuclear accident” [PPT]. IR_JP 1 4_Kishimoto

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New York Times helps us understand risk

The essential mission of risk management is to “anticipate and prevent or mitigate harms that may be avoidable.” The detailed, ed retrospective analysis of risk management failures is a crucial aspect of learning from mistakes and making the requisite changes to avoid or mitigate future failures. This type of analysis seeks to provide a precise accounting of the situation as it existed before the catastrophic failure occurred, included what was known, or reasonably should have been known, by the main actors in the events, about relevant information and alternative strategies for risk reduction. (Thus it is not a case of adding blame after the fact for mistakes that could not have been foreseen by anyone.)

A series of articles published in The New York Times since March 2011 is indispensable for understanding what when wrong, and why. For a full list of all articles, go to: The New York Times, “Times Topics”:

EARTHQUAKE, TSUNAMI AND NUCLEAR CRISIS

http://topics.nytimes.com/top/news/international/countriesandterritories/japan/index.html

The following Times articles are of particular interest:

1. “Japanese Rules for Nuclear Plants relied on Old Science,” by Norimitsu Onishi and James Glanz, 26 March 2011:

The offshore breakwaters protecting Japan’s nuclear plants – all of which face the sea – were designed to protect against the risk of typhoons, but not the risk of tsunamis. In general, this article’s review of Japan’s approach to nuclear safety concludes: “Japan is known for its technical expertise. For decades, though, Japanese officialdom and even parts of its engineering establishment clung to older scientific precepts for protecting nuclear plants,… failing to make use of advances in seismology and risk assessment since the 1970s.”

2. “Culture of Complicity tied to stricken Nuclear Plant,” by Norimitsu Onishi and Ken Belson, 26 April 2011:

This article details the long-term web of complicity among industry officials, politicians, and government regulators which ensured that dissenting views on risk management were systematically excluded from consideration. “Influential bureaucrats tend to side with the nuclear industry – and the promotion of it – because of a practice known as amakudari, or descent from heaven. Widely practiced in Japan’s main industries, amakudari allows senior bureaucrats, usually in their 50s, to land cushy jobs at the companies they once oversaw.”

3. “Japanese Officials ignored or concealed Dangers,” by Norimitsu Onishi and Martin Fackler, 16 May 2011:

During decades of successfully battling against lawsuits filed by civilians against the nuclear industry in Japan, industry officials and academics regarded as friendly to the industry systematically covered up deficiencies in the siting of the plants, seismological records, the existence of fault lines, and the viability of the safety measures at the plants.

4. “’Safety Myth’ left Japan ripe for Nuclear Crisis,” by Norimitsu Onishi, 24 June 2011:

The use of robots for emergency measures at nuclear plants – especially when radiation levels are very high – is standard in the industry around the world, but not in Japan, despite the fact that it is the world’s leader in robotic technologies. Why not? Hiroyuki Yoshikawa, a robotics expert, explained: “The [nuclear] plant operators said that robots, which would premise an accident, were not needed. Instead, introducing them would inspire fear [among the public], they said. That’s why they said that robots couldn’t be introduced.”

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Emerging Risks with the Potential For Catastrophic Losses

I am particularly concerned with emerging risks with the potential for catastrophic losses, which will be, in my view, an integral feature of an increasingly globally-interconnected world. Of course, this is an overriding concern for both the insurance and reinsurance industries as well as for governments (in their capacity as insurers of last resort for their citizens). In my presentation at the iNTeg-Risk conference I mentioned three such events in the past three years: the global financial crisis (ongoing since late 2008, with no end in sight and with almost incalculable levels of realized and projected losses around the globe); the BP spill in the Gulf of Mexico (2010); and the nuclear industry crisis in Japan (2011).

This is the opening paragraph from Dr Leiss’ opening remarks at the iNTeg-Risk/IRGC Joint Session on Emerging Risks in Stuttgart, 6 June 2011. A copy of his full talk is attached.

Emerging Risks

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Doom Loop available

Cover image for Doom Loop

In the past two years, unhealthy the world has experienced how unsound economic practices can disrupt global economic and social order. Today’s volatile global financial situation highlights the importance of managing risk and the consequences of poor decision making.

The Doom Loop in the Financial Sector reveals an underlying paradox of risk management: the better we become at assessing risks, ed the more we feel comfortable taking them. Using the current financial crisis as a case study, renowned risk expert William Leiss engages with the new concept of “black hole risk” — risk so great that estimating the potential downsides is impossible. His risk-centred analysis of the lead-up to the crisis reveals the practices that brought it about and how it became common practice to use limited risk assessments as a justification to gamble huge sums of money on unsound economic policies.

In order to limit future catastrophes, Leiss recommends international cooperation to manage black hole risks. He believes that, failing this, humanity could be susceptible to a dangerous nexus of global disasters that would threaten human civilization as we know it.

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New article – Managing Prion Disease Risks

W. Leiss, seek M. G. Tyshenko, ailment N. Cashman, medicine D. Krewski, L. Lemyre, C. Amaratunga, M. Al-Zoughool. “Managing Prion Disease Risks: A Canadian Perspective.” International Journal of Risk Assessment and Management, Vol. 14, no. 5 (2010), 381-436.

Abstract: This paper reviews the history of the risk management challenges faced by many countries and regions of the world which have had cases of bovine spongiform encephalopathy (BSE) from 1986 to the present. The paper first summarizes the nature of prion diseases from a scientific perspective, and then presents an overview of the findings of an extensive set of country case studies, devoting special attention to the Canadian case. It derives from these studies the need to reconstruct the frameworks which have been guiding risk management decision making, using formal schemata based on a step-by-step approach. The paper presents and illustrates a revised format for an integrated risk management framework, including a set of specific and explicit objectives that should guide the use of this framework in practice, and concludes by raising policy issues that are currently outstanding with respect to the management of prion disease risks.

This article is now available in its entirety (PDF file) to all interested readers. Please go to the following site and follow the link:

http://www.prionetcanada.ca/landing.aspx?landing=Research

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New appointment:

Member, for sale International Advisory Board, ed iNTeg-Risk (2011-2014), a Virtual Institute set up under the EU Seventh Framework Programme [EU-VRi], Stuttgart, Germany [http://www.integrisk.eu-vri.eu/]

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Just published…

“Modern Science, tadalafil Enlightenment, tadalafil and the Domination of Nature: No Exit?” In: Critical Ecologies, ed. Andrew Biro (University of Toronto Press, 2011), pp. 23-42.

http://www.utppublishing.com/Critical-Ecologies-The-Frankfurt-School-and-Contemporary-Environmental-Crises.html

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WikiLeaks and the Mushroom Industry

There has been a fair amount of frothing at the mouth by media commentators, drug including some academics, nurse about the latest trove of documents. Great quantities of damage have been alleged, although (unlike the information in the WikiLeaks documents) these are entirely speculative in nature; huge risks have been postulated, but again, with little intimation of what or who is allegedly at risk (apart from those persons associated with WikiLeaks).

A Canadian diplomat offers to resign for having told his masters that Afghan President Harmid Karzai is a crook. What a surprise! Are these deep thinkers among the commentators really unaware that the President’s office in Afghanistan is and always has been a hub of money- laundering, bribe-taking, and narcotics trafficking? Are they unaware that, no matter what noble sacrifices our soldiers, and those of other countries, have and will make before they finally depart, the country in question will revert to some version of a failed state, run by warlords and manipulated by our stalwart ally, Pakistan’s so-called intelligence service, immediately upon their departure? That then the helpless women of Afghanistan will be subjected to the same vicious brutality and mutilation – see the current issue of National Geographic – they have always endured, with a little extra thrown in for their presumption in seeking a modicum of relief during the foreigners’ occupation?

One or two rotund sheiks from the oil kingdoms urged the U. S. to obliterate the Iranian regime. Here some confusion might be engendered in the public mind: Were they motivated out of concern for the welfare of the Israelis? Probably not. It’s more likely that these pious Sunnis were thinking of how much more peaceful the Islamic Umma would be if about seventy million of their heretical co-religionists were abruptly wiped off the face of the earth.

Pakistan is a failed state, where the fractious government makes promises to their foreign benefactors that they know they will never keep, while gleefully cashing their cheques for vast new stocks of military equipment, and while slyly encouraging popular opinion to blame foreigners for all their woes. Russia is indeed a mafia-controlled state where massive corruption occurs among the political and economic elite. These are truths well-known to all who have eyes to see, and now we realize, courtesy of WikiLeaks, that some diplomats are also aware of them. What an astonishing revelation!

To his credit our own Stephen Harper backed his diplomats in Afghanistan. As far as most other politicians are concerned, their real interest in maintaining secrecy in such matters is to dupe their own citizens about the realities of global affairs. For politics is a subsidiary of the mushroom industry, the modus operandi of which is simplicity itself: Keep the product in the dark and feed it on horseshit. Throwing a bit of light on this dark industry is not good for mushrooms but is always an excellent tonic for the public.

So far as Mr. Assange is concerned, he probably has little to fear from Canadian-based assassination squads, but he really ought to turn himself in to the Swedish justice system and answer the charges against him. After all, it’s not as if it’s the Chinese authorities who are after him. Or is that another unpleasant truth that we shouldn’t talk about?

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Reconciling

For the particle physics community the notorious “Higgs boson” is the Holy Grail: This entirely theoretical construct is thought to give mass to matter – without which the material world wouldn’t amount to much, pharm obviously. They hope to find it with the help of the massive and massively expensive Large Hadron Collider built by CERN along the Franco-Swiss border. Outside the scientific community it is whimsically referred to as the “God particle.”

In the March 8 Globe and Mail Rolf-Dieter Heuer, advice the director of CERN, is quoted as follows: “The Higgs particle is not easy to find. We know everything about the Higgs particle, except if it exists.”

Sort of like God, no?

Those who hope for the reconciliation of monotheism and modern science should be very pleased.

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Airline Security and Risk Management

Judging from the various articles in this Tuesday’s Globe and Mail, there remains a fair amount of confusion, here and elsewhere, about airline security in the wake of the latest terrorist plot.  Those of us who are “risk junkies” have been expecting something like what happened on Northwest Flight 253 since early last September – and, we fervently hope, government security officials, especially in the United States, have too, even though they missed Mr. Abdulmutallab.

What’s next? Click “(More…)” below, and let’s do some serious risk management.

Continue reading

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Book: The Priesthood of Science

The latest in the Herasaga trilogy, discount Priesthood of Science is published by University of Ottawa Press.

Hera and her sisters are now sealed off from the rest of the world in the vicinity of Yucca Mountain in southern Nevada. Hera is still tormented by her parents’ decision to genetically modify the brains of their twelve daughters—and by her own agreement to allow a similar procedure to be used on a much larger group of human embryos.

In a series of dialogues with a molecular biologist recruited for their private university, Hera and Gaia debate the changing relationship between science and society from the time of Lavoisier in the eighteenth century to the terrible legacy of atomic physics in the twentieth. Two dialogues between Hera and Jacob Hofer, a Hutterite minister, deal with the issue of nihilism in religion and science.

Meanwhile, the group of engineered embryos has become one thousand young people just turning eighteen, and their gender politics are threatening to ruin Hera’s new beginning for human society.

Like priests, scientists are liable to be misled by the purity of their motives into downplaying the risks inherent in their creations.

“It is, of course, quite correct for you to allot the relevant priesthood to Niels Bohr.” (Albert Einstein to Max Born, 7 September 1944)

The priesthood of science (introduction)

This is the opening section from the Prologue to The Priesthood of Science, Book Two of The Herasaga, to be published in 2008. These words – “Begotten, not made” – are from the Nicene Creed, one of the fundamental texts of the Christian faith. They are reinterpreted here by Hera in the context of evolutionary biology and the appearance on earth of the Hominina subtribe: gorillas, chimpanzees, and humans. See the website for Book One of The Herasaga, entitled Hera, or Empathy: http://www.herasaga.com

Download a copy of the PDF here: Begotten Not Made

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Book: The Essential Marcuse

The Essential Marcuse: Selected Writings of Philosopher and Social Critic Herbert Marcuse, cialis edited by Andrew Feenberg & William Leiss

http://www.beacon.org/productdetails.cfm?PC=1836

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Book: Hera or Empathy

Ever since Plato, philosophers have been imagining future utopian societies. In more recent times, many of these fantasies have been about the doings of scientists because modern science fascinates us with the prospect of changing every aspect of our lives.

Hera is one of twelve sisters genetically modified by their neuroscientist parents to have superior mental faculties. During their teenage years the sisters were forced to flee for their lives from the remote Indonesian village where they were born. Later, Hera challenges her father’s right to have engineered his children, using the Biblical story of creation against him. But one day she discovers that the sisters’ genes contain modifications that their parents didn’t intend.

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