Wicked tail risks

x-risk, y-risk, jackpot, die-risk,

April 30, 2015 — October 11, 2023

game theory
how do science
incentive mechanisms

How do we manage risks of very bad stuff that are beyond precise statistical quantification? Black swans etc.

Normal accidents at an existential-risk scale. Capitalism’s end game.

This is a mere placeholder, although I should have more, since it was the central concern of the Chair of Entrepreneurial Risksh where I did my MSc under the supervision of Didier Sornette.

1 For policy

See science for policy.

2 In financial markets

See financial stability

3 Prediction via markets

See prediction markets.

4 Incoming

Nassim Taleb has a whole career based on handling heavy-tailed risk and managing out-of-sample downsides (Taleb 2007, 2020).

Eliezer Yudkowsky, Moore’s Law of Mad Science:

Every eighteen months, the minimum IQ necessary to destroy the world drops by one point.

Fun but implausibly simple differential equation models of civilisational implosion.

Figure 1

5 References

Chernov, and Sornette. 2016. Man-made catastrophes and risk information concealment: case studies of major disasters and human fallibility. Management/Business for professionals.
Cirillo, and Taleb. 2020. Tail Risk of Contagious Diseases.” Nature Physics.
Dai, Vorselen, Korolev, et al. 2012. Generic Indicators for Loss of Resilience Before a Tipping Point Leading to Population Collapse. Science.
Filimonov, Bicchetti, Maystre, et al. 2014. Quantification of the High Level of Endogeneity and of Structural Regime Shifts in Commodity Markets.” Journal of International Money and Finance, Understanding International Commodity Price Fluctuations,.
Filimonov, and Sornette. 2012. Quantifying Reflexivity in Financial Markets: Toward a Prediction of Flash Crashes.” Physical Review E.
Helmstetter, Sornette, and Grasso. 2003. Mainshocks Are Aftershocks of Conditional Foreshocks: How Do Foreshock Statistical Properties Emerge from Aftershock Laws.” Journal of Geophysical Research.
Holling. 2001. Understanding the Complexity of Economic, Ecological, and Social Systems.” Ecosystems.
Johansen, and Sornette. 2001. Finite-Time Singularity in the Dynamics of the World Population, Economic and Financial Indices.” Physica A: Statistical Mechanics and Its Applications.
Lux, and Sornette. 2002. On Rational Bubbles and Fat Tails.” Journal of Money, Credit and Banking.
Malevergne, Yannick, and Sornette. 2003. Testing the Gaussian Copula Hypothesis for Financial Assets Dependences.” Quantitative Finance.
Malevergne, Y, and Sornette. 2005. Extreme Financial Shocks : From Dependence to Risk Management.
Palen, and Anderson. 2016. Crisis Informatics—New Data for Extraordinary Times.” Science.
Sornette, Didier. 2003. Critical Market Crashes.” Physics Reports.
———. 2006. Endogenous Versus Exogenous Origins of Crises.” In Extreme Events in Nature and Society. The Frontiers Collection.
———. 2009a. Probability Distributions in Complex Systems.” In Encyclopedia of Complexity and Systems Science.
———. 2009b. Dragon-Kings, Black Swans and the Prediction of Crises.” arXiv:0907.4290 [Physics].
Sornette, Didier, and Cauwels. 2012. The Illusion of the Perpetual Money Machine.” SSRN Scholarly Paper ID 2191509. Notenstein Academy White Paper Series.
———. 2015. Managing Risk in a Creepy World.” Journal of Risk Management in Financial Institutions.
Sornette, Didier, Deschâtres, Gilbert, et al. 2004. Endogenous Versus Exogenous Shocks in Complex Networks: An Empirical Test Using Book Sale Rankings.” Physical Review Letters.
Sornette, D, and Helmstetter. 2003. Endogenous Versus Exogenous Shocks in Systems with Memory.” Physica A: Statistical Mechanics and Its Applications.
Sornette, Didier, Maillart, and Ghezzi. 2014. How Much Is the Whole Really More Than the Sum of Its Parts? 1 ⊞ 1 = 2.5: Superlinear Productivity in Collective Group Actions.” PLoS ONE.
Sornette, D., Malevergne, and Muzy. 2004. Volatility Fingerprints of Large Shocks: Endogenous Versus Exogenous.” In The Application of Econophysics.
Sornette, D., and Utkin. 2009. Limits of Declustering Methods for Disentangling Exogenous from Endogenous Events in Time Series with Foreshocks, Main Shocks, and Aftershocks.” Physical Review E.
Sornette, Didier, Woodard, Yan, et al. 2013. Clarifications to Questions and Criticisms on the Johansen–Ledoit–Sornette Financial Bubble Model.” Physica A: Statistical Mechanics and Its Applications.
Tainter. 1988. The Collapse of Complex Societies.
———. 2006. Archaeology of Overshoot and Collapse.” Annual Review of Anthropology.
Taleb. 2007. Black Swans and the Domains of Statistics.” The American Statistician.
———. 2010. The Black Swan:The Impact of the Highly Improbable: With a new section: “On Robustness and Fragility”.
———. 2018. Election Predictions as Martingales: An Arbitrage Approach.” Quantitative Finance.
———. 2020. On the Statistical Differences Between Binary Forecasts and Real-World Payoffs.” International Journal of Forecasting.
Wheatley, Sovacool, and Sornette. 2017. Of Disasters and Dragon Kings: A Statistical Analysis of Nuclear Power Incidents and Accidents.” Risk Analysis.
Yukalov, Yukalova, and Sornette. 2009. Punctuated Evolution Due to Delayed Carrying Capacity.” Physica D: Nonlinear Phenomena.