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Decision-making within misleading periods of risk


Disastrous Floods as Indicators of Systemic Risk Neglect (Part #7)


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Many strategic decisions are taken with respect to periods within which the risk associated with the decision is less likely to become evident. If deprecated, this is termed short-termism. Short-termism in democracies is typically associated with frequent elections arising from the instability of coalition governments. The notorious short-termism of the stock market is recognized as potentially antithetical to appropriate spending on maintenance and investment in industries with long time horizons, where the failure to do so may only have effects a decade or more hence (No bonuses for 'short-termism' financial planning, The Climate Institute, 17 October 2008; Myopia: Short - termism, a barrier to corporate sustainability? Green Capital: advancing corporate sustainability, 26 June 2006)

This is partially illustrated in the financial case by the use of the Gaussian copula. It is also partially illustrated by assumptions regarding the vulnerability of buildings and infrastructure to "200-year floods". Clearly the life of the building, or of its owners, may well be less than manifestation of such a flood. In which case: no problem. Financial transactions can readily be taken with such assumptions -- "before the statistical chickens come home to roost".

A valuable example is provided by problematic health effects from new drugs testing favourably over a particular period -- and then marketed -- although the problematic effects only become evident over a longer period. A number of drugs have been withdrawn or banned after such effects become manifest (lindane, DDT, ; see List of banned drugs; Internationally banned drugs; List of drugs banned from the Olympics). This example can be extended to include food products (additives, flavours, dyes and sweetening agents) and agricultural products (see banned fertilizers, banned pesticides, additives, and banned growth hormones). Genetic modification of organisms is vigorously defended on the basis of evident provided within a limited test period. Problematic effects that emerge over a longer period may well do so long after the inventors and manufacturers have themselves disappeared -- or are well able to deny responsibility.

Another example is provided in the construction industry where understrength materials may be used -- however well they may test in the short term -- with effects becoming manifest at a later stage in the form of collapsing buildings and bridges. More generally this applies to the durability of many products.

A useful example is provided by government decision-making. Initiatives can be taken -- to widespread favourable acclaim -- whose problematic effects only become evident within the mandate of a subsequent government. The latter is then able to claim no responsibility for the poor decision-making of its predecessors -- especially if the initiative was launched several mandates previously.

In the light of such examples, questions might then be asked as to the risk levels to which people are exposed, knowingly or unknowingly -- with or without adequate "testing" of relevance to the period in question, but especially to any longer period in which consequences are more likely to manifest:

  • within a one-hour period
  • within a one-day period
  • within a one-month period
  • within a one-year period
  • within a 5-year period
  • within a 10-year period
  • within a 20-year period
  • within a 200-year period -- future generations
  • within a 500-year period

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