In his Edge Magazine essay Life Is Not A Casino, Nassim Nicholas Taleb, the trader and author (of The Black Swan and Fooled By Randomness) discusses why he no longer thinks that using statistics and probability to make decisions is wise. The problem, he says, is that:
When it comes to low odds, decision making no longer depends on the probability alone. It is the pair, probability times payoff (or a series of payoffs), the expectation, that matters. On occasion, the potential payoff can be so vast that it dwarfs the probability—and these are usually real-world situations in which probability is not computable.
Taleb is a very interesting speaker. I highly recommend a couple of his talks which are available as podcasts. He spoke to the Long Now Foundation in February on “The Future Has Always Been Crazier Than We Thought” (mp3, summary), and at PopTech in 2007 (mp3, description).
Bringing us back to our usual topic of energy and climate change, he makes this observation at the end of the essay:
Correspondents keep asking me if the climate worriers are basing their claims on shoddy science and whether, owing to nonlinearities, their forecasts are marred with such a possible error that we should ignore them. Now, even if I agreed that it was shoddy science; even if I agreed with the statement that the climate folks were most probably wrong, I would still opt for the most ecologically conservative stance. Leave Planet Earth the way we found it. Consider the consequences of the very remote possibility that they may be right—or, worse, the even more remote possibility that they may be extremely right.
“Extremely right,” for Taleb, means that climate change will be much worse than we thought, or much faster, or have a much larger impact than expected. The danger of that, despite its low probability, making it a “black swan” in his parlance, means that investing to prevent it is worth it, even if costly. (Of course, I argue elsewhere that it could be profitable, not costly.)