Transcript
FRANCIS FUKUYAMA: September 11th I believe in retrospect was a pretty lucky one-of event that they managed to pull off that speculator a terrorist attack and get all the planes going in the right direction and coordinated and so forth. What it did was it made extraordinarily vivid to every American alive that day the possibility of mass-casualty terrorism. This led to the so-called 1-percent solution where people said even if it is an extremely low probability of this happening, it is so catastrophic that it is worth taking extraordinarily large measures to hedge and defense against that. The problem with that is intellectually extremely difficult. I actually think that the likelihood of a mass casualty, pick some near-time period, but the probability of a nuclear weapon exploding in an America city, it matters a great deal if you think that is a 1-in-10, a 1-in-100, a 1-in-1,000, or 1-in-10,000 chance and there are things that you are going to do if you think it is a 1-in-10 or even 1-in-100 that you will simply find too costly to do if it is 1-in-1,000 or 1-in-10,000 and we frankly actually do not know what the actual probabilities are so you cannot even begin to make that probabilistic cost-benefit calculation. But let's say that the actual probability of this kind of an event was 1-in-5,000 over some near-term time period. There are a lot of 1-in-5,000 probability events that could be quite catastrophic that could also happen, but everybody in the United States could visualize this one particular event which then in my humble opinion led to a great overinvestment in a hedging strategy to deal with that one particular event which in retrospect I think was a terrible mistake.
So these are some of the I think kind of practical problems in dealing with this category of problems. I think it is inevitable that we are going to use our existing frameworks to think about the future, we cannot avoid this problem of this sort of bias, but what we can force ourselves to do is to think a little bit systematically about alternative worlds that could occur in which those assumptions are decidedly wrong and then think through ahead of time, maybe there are certain hedges you actually will want to make in the near-term, but you can certainly try to think through responses so that when the blindsiding happens as it inevitably will, you are at least prepared to move more quickly than decision makers who are bound to these prior frameworks have typically done in the past.
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