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> But the real issue is that no business is managed to handle the tail risk (the rare, low-likelihood events with disastrous consequenses). There is an entire

> But the real issue is that no business is managed to handle the tail risk (the rare, low-likelihood events with disastrous consequenses). There is an entire industry devoted to this. It's what made Warren Buffet rich.

toss1 7y ago
Yes, that's called insurance, and it is about ordinary risks not tail risks, and about only the financial component, not the real-world component. Having fire insurance is NOT the same as installing detection and response systems and having a prepared and active fire department. Getting an insurance payout for your dead children is not the same as having the fireman with his ladder and gear go into the building and rescue them. Insurance manages only PART of the financial component of risk. Read an insurance policy and you will find dozens of pages AVOIDING the real tail risks - the rare events with massive potential losses. If you really want to insure against tail risk, you need to go, not to the overall insurance industry but a small subset of specialty insurers, such as Lloyd's of London (which actually isn't even actually an insurance company). Even with those specialty insurance-type products, no amount of insurance can protect you from the practical consequences of not being prepared for tail risk. As in the firemen example above, you might be able to get a massive payout for your inability to buy masks this week, but no payout will guarantee that you can actually get the items you need if they don't exist. In contrast, a properly prepared govt would spend the funds to have them on hand, just as we have on hand an inventory of fire trucks, water pipes and hydrants, etc. So, no, insurance not an example where a business runs like a govt. should The goals of a business vs a competent govt are fundamentally different. Business is run for current profit, govt is all about building infrastructure, both physical & institutional and preparing for (not insuring against) massive tail risk.

toss1 7y ago

Yes, that's called insurance, and it is about ordinary risks not tail risks, and about only the financial component, not the real-world component. Having fire insurance is NOT the same as installing detection and response systems and having a prepared and active fire department. Getting an insurance payout for your dead children is not the same as having the fireman with his ladder and gear go into the building and rescue them. Insurance manages only PART of the financial component of risk. Read an insurance policy and you will find dozens of pages AVOIDING the real tail risks - the rare events with massive potential losses. If you really want to insure against tail risk, you need to go, not to the overall insurance industry but a small subset of specialty insurers, such as Lloyd's of London (which actually isn't even actually an insurance company). Even with those specialty insurance-type products, no amount of insurance can protect you from the practical consequences of not being prepared for tail risk. As in the firemen example above, you might be able to get a massive payout for your inability to buy masks this week, but no payout will guarantee that you can actually get the items you need if they don't exist. In contrast, a properly prepared govt would spend the funds to have them on hand, just as we have on hand an inventory of fire trucks, water pipes and hydrants, etc. So, no, insurance not an example where a business runs like a govt. should The goals of a business vs a competent govt are fundamentally different. Business is run for current profit, govt is all about building infrastructure, both physical & institutional and preparing for (not insuring against) massive tail risk.