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That's because the risk of fragility is typically not priced in. If risks werent treated as an externality this failure mode would be taken care of. Of course
by srean 5y ago
That's because the risk of fragility is typically not priced in.
If risks werent treated as an externality this failure mode would be taken care of. Of course some unanticipated failure modes would always come and surprise us. I would be one happy person if the failures we see around us were all of this 'inconceivable' variety. Very few are, except when one buries one head in the sand and refuses to consider the fairly obvious risks.
- AlbertCory 5y agoThe "risk of fragility" is bankruptcy, or death if we're talking about a biological organism. For example, the financial entity that makes tons of money speculating in a worthless asset, then goes belly up when its worthlessness is exposed (I won't name the asset(s) to avoid a flame war). You can't "price that in." You just avoid it.
- srean 5y agoOne sure can, by engineering a more robust system. This will cost you some though. One can buy insurance, one can make tail hedges. The right mix of mitigation strategies depends on the nature of the threat. Avoiding it falls in the same spectrum. It is equivalent to assigning an infinite cost to the risk .