The erratic rhythm of boom and bust in financial markets could be explained either by the patterns of crowd-following behaviour among investors, or by the unequal distribution of wealth (and the impact of the largest investors on the markets). Climate crises reflect the fact that natural systems can reach tipping points or critical transitions, where gradual change gives way to large-scale discontinuous changes. The economics of climate change has lagged behind the science, understating the severity of the problem and the likelihood of a crash.
While the causes of climate and financial extremes are distinct, the implications for public policy have much in common. The frequency of extreme events, of varying sizes, means that there is no way to predict the likely size of future crises. The traditional approach to risk aversion cannot account for longstanding patterns in financial markets. Better theories of risk call for more precautionary approaches to both financial and climate policy. In the frequent cases in which potential outcomes have unknown probabilities, the best policy is based on the worst-case credible scenario. When a single catastrophic risk commands everyone’s attention, a World War II-style, costs-be-damned mobilization is the right response. There is no formula for perfect responses to extreme risks, but there are important guideposts that point toward better answers.
|Series:||Anthem Frontiers of Global Political Economy and Development|
|Product dimensions:||5.70(w) x 8.60(h) x 0.80(d)|
About the Author
Table of ContentsList of Figures; 1. Introduction; 2. Steam-engine economics; 3. Beyond homo economicus; 4. Big and dirty; 5. Pictures of improbability; 6. Trillions, or only hundreds?; 7. Zipf’s law and other stories; 8. Ants and traders; 9. Too big to ignore; 10. Climate tipping points and known unknowns; 11. Predators and prey; 12. Good enough for government work; 13. Fat tails and the failure of forecasting; 14. Misunderstanding risk; 15. Choices beyond calculation; 16. Who won World War II?; 17. Conclusion; Acknowledgments; Bibliography; Index.
What People are Saying About This
“Old-fashioned economics has led to dangerously wrong-headed approaches to climate change and other ‘extreme event’ situations, such as financial crises. In this highly accessible but profound book, Ackerman persuasively shows the urgency of smarter, more recent thinking about how natural and economic systems work and why we need to pay much more attention to worst cases. This is a must-read book for anyone who wants to understand the world we now inhabit.” —Juliet Schor, author of Plenitude: The New Economics of True Wealth
“Ackerman’s Worst-Case Economics will convince you that the conventional economic modeling of risk is inadequate when financial crashes, environmental collapse and other cataclysmic outcomes are possible and that policies based on prudence regarding the worst-case scenario are needed. An important book and a delight to read.” —Samuel Bowles, Research Professor and Director, Behavioral Science Program, Santa Fe Institute, New Mexico, USA