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A Precautionary Tale of Uncertain Tail Fattening

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  • Weitzman, Martin L.

Abstract

Suppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.

Suggested Citation

  • Weitzman, Martin L., 2013. "A Precautionary Tale of Uncertain Tail Fattening," Scholarly Articles 12840806, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:12840806
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    References listed on IDEAS

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    1. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, April.
    2. Millner, Antony & Dietz, Simon & Heal, Geoffrey, 2010. "Ambiguity and climate policy," LSE Research Online Documents on Economics 37595, London School of Economics and Political Science, LSE Library.
    3. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, April.
    4. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    5. Claude HENRY & Marc HENRY, 2002. "Formalization and Applications of the Precuationary Principle," LIDAM Discussion Papers IRES 2002009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. Martin L. Weitzman, 2011. "Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 275-292, Summer.
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    9. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    Cited by:

    1. In Chang Hwang & Richard S.J. Tol & Marjan W. Hofkes, 2013. "Active Learning about Climate Change," Working Paper Series 6513, Department of Economics, University of Sussex Business School.
    2. Hans-Jürgen Nantke & Alfred Endres & Frederik Schaff & Till Requate & Susanne Dröge, 2013. "Scheitern der Reform des Emissionshandels: Verliert Europa die Vorreiterrolle in der Klimapolitik?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(12), pages 03-15, June.
    3. Max Gillman & Michal Kejak & Michal Pakoš, 2015. "Learning about Rare Disasters: Implications For Consumption and Asset Prices," Review of Finance, European Finance Association, vol. 19(3), pages 1053-1104.
    4. Lopez, Ramon E. & Pastén, Roberto & Gutiérrez Cubillos, Pablo, 2022. "Climate change in times of economic uncertainty: A perverse tragedy of the commons?," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 209-225.
    5. Edward B. Barbier & Joanne C. Burgess, 2019. "Scarcity and Safe Operating Spaces: The Example of Natural Forests," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1077-1099, November.
    6. Sturla F. Kvamsdal & Ivan Belik & Arnt Ove Hopland & Yuanhao Li, 2021. "A Machine Learning Analysis of the Recent Environmental and Resource Economics Literature," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(1), pages 93-115, May.
    7. Hwang, In Chang, 2014. "Fat-tailed uncertainty and the learning-effect," MPRA Paper 53671, University Library of Munich, Germany.
    8. Max Gillman & Michal Kejak & Michal Pakoš, 2015. "Learning about Rare Disasters: Implications For Consumption and Asset Prices," Review of Finance, European Finance Association, vol. 19(3), pages 1053-1104.
    9. Hwang, In Chang & Tol, Richard S.J. & Hofkes, Marjan W., 2016. "Fat-tailed risk about climate change and climate policy," Energy Policy, Elsevier, vol. 89(C), pages 25-35.
    10. Max Gillman & Michal Kejak & Michal Pakos, 2014. "Learning about Disaster Risk: Joint Implications for Consumption and Asset Prices," CERGE-EI Working Papers wp507, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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