6 - 26/01/2010 20:15:00 Weitzmans Fat Tails:...

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Unformatted text preview: 26/01/2010 20:15:00 Weitzmans Fat Tails: low-probability, high damages catastrophes Damages are a function of intensity, fraction of GDP 10% of damages cause 80-90% of damages probability weight decreases very slowly as the values get very large (so the density f(x) is substantially greater than 0 even as x approaches infinity) implication: expected value of damages x may be very large or infinite, even though the median value of x may be small Weitzman observes that positive feedback loops with respect to global temperatures may imply that the probability density of damages from a doubling of C02 concentration has a fat right tail. fat tail implies that the expected value of damages from a doubling of C02 concentration is infinite Society should therefore spend all of its resources to make sure that CO2 does...
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6 - 26/01/2010 20:15:00 Weitzmans Fat Tails:...

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