Gather round boys and girls, because I want to tell you a story. It is a tale of two fearsome warriors engaged in a battle for your ecological soul. The first was an esteemed expert in all matters climatological and psychological. For the purposes of the tale, I will call him Stephan Lewandowsky. The second was a notorious denier of science who sought to overthrow the received wisdom of the many, with specious hand-waving arguments that flew in the face of all that is known of physics and basic mathematics. For the purposes of the tale, I will call him Ben Pile. Hear me now as I recount the day when they duelled at dawn, ably refereed by the world’s most impartial and open-minded moderator, who, for the purposes of the tale, I will call Willard. If you want to know who emerges victorious, you can cheat and go straight to this article’s punchline. But if you want to know why, then you are going to have to be more patient.
You see, it all began when Stephan issued a grand proclamation for all the land to read. In it, he was able to demonstrate, with little more than basic mathematics, that when uncertainty increases, so does the risk. With a clarity of thought that most of us only dream of possessing, Stephan carefully (and patiently) explained that those of us who argued that nothing can be said regarding risk under conditions of high uncertainty were mistaken. This was because they were failing to take into account that the loss function was marked by a concave curve. Or was it convex? I don’t remember, but the point is that everyone knew (and by that I mean all economists knew) that the cost of risk mitigation rises non-linearly with the risk of warming. Consequently, a greater spread of future possibilities will allow for potentially high mitigation costs at the high impact end of the uncertainty spread, yet these are not offset by correspondingly lower costs at the low impact end. This can only mean that the economic risk rises as uncertainty increases.
Ben wasn’t impressed and accused Stephan of simply re-inventing something called the precautionary principle. Now Willard, as you will recall, is a very fair individual who is very cautious about drawing conclusions unless he can be certain of them. So he cited the adjudication of a wise old sage called James, who was more than happy to point out the ‘really strange’ nature of Ben’s protests. It turns out that Ben had failed to notice that Stephan had only used basic mathematics to prove his point – it had nothing to do with the precautionary principle. It seems that Ben’s duelling pistol had jammed at the critical moment, whilst Stephan had fired a silver bullet. Willard, duly impressed by the calibre and metal of that projectile was more than happy to declare Stephan the winner.
However, what Willard and his wise old sage had failed to notice was that Stephan’s bullet, far from piercing the blackened heart of the evil denialist, had embedded itself in an innocent tree that had strayed too close to the action.
Regrettably, we must leave that tree1 to its slow and lingering death, as it cries out to its Mother Earth, and concentrate instead on what could possibly have caused Stephan’s perfectly aimed weapon to have failed in its holy mission. And to do this we have to start by recognising two key facts:
- As uncertainty increases, so does our inability to reliably quantify probability, and hence quantify the risk levels
- As uncertainty increases, so does the risk of being risk inefficient
The first point was understood by Stephan and the wise old sage (history does not record what Willard understood). But just because one cannot quantify a risk, that doesn’t mean that one cannot still know that it has to be higher than the known, quantifiable risks. And that, surely, was the point.
Due to uncertainty, we may not know just how bad it is going to be, but we know that the greater the uncertainty, the worse it has to be. However, Stephan was seemingly unaware that, by allowing a circumstance in which risk could no longer be reliably calculated, he had simply swapped risk aversion for uncertainty aversion, and this had actually been Ben’s point. Nevertheless, to Ben’s adversaries, his objections had been no more than ‘vacuous hyperbole’; whatever you call the aversion, it could still be used as a rational basis for a call-to-arms to mitigate the risk – whatever that might be.
More importantly, what Stephan had not taken into account was the second point, and what it says regarding the relationship between uncertainty and risk efficiency. In fact, risk efficiency formed no part of Stephan’s argument or the sage’s observations. Which is a shame, because the first thing one is taught as a risk manager is that the risk manager’s obligation is not to minimise risk but to maximise risk efficiency. Perhaps it is time that I explain what risk efficiency is. To do that, I am going to break the habit of a lifetime and offer you a diagram:
This diagram conveys the idea that any level of risk can be driven down to an arbitrarily low value by investing further in risk reduction (or conversely by being sufficiently risk averse and accepting the cost of lost opportunity). However, it is likely that the law of diminishing returns applies here, hence the general shape of the risk reduction curve. This curve also represents the pareto optima, i.e. when you are on the curve, the only way that you can reduce the cost is by increasing the risk, and vice versa. The region to the left of the curve is, by definition, unreachable. The region between the ‘Tolerable’ and ‘Broadly Acceptable’ thresholds is known as the ALARP region (where risk is As Low As Reasonably Practicable). Where you draw these thresholds on the diagram is a measure of your risk aversion. Where you choose to settle on the curve, within the ALARP region, represents a professional judgement taken in the face of practical considerations.
So far, so good. Unfortunately, there are two fictions involved in this story. Firstly, the pareto optima curve is hypothetical. In the real world, it is highly unlikely that you will be able to plot the curve and, even if you could, it would probably not be as well-behaved a function as I have shown here. Secondly, in the real world you will never actually be on this curve; you will instead find yourself somewhere to the right of it. The extent to which you are adrift is known as your Risk Efficiency, and it manifests as unnecessarily high residual risk for a given risk mitigation investment.
So what are the factors that prevent the risk manager from ensuring that we are sat on the pareto optima curve? The simple answer is ‘uncertainty’. Yes, one can wantonly invest unwisely on management strategies that are known to be ineffective, but it is more normally the case that risk inefficiency is an accident born of ignorance, aka epistemic uncertainty. One usually discovers one’s risk inefficiency after the sure-fire remedy has failed. You thought you understood the risks, their magnitudes and their causations, but it turns out you didn’t!
If I could sum up the respective positions of the sceptical and alarmist camps in one slogan, it might be this:
Alarmists are more worried about the risk but sceptics are just as worried about risk efficiency
Contrary to Stephan’s understanding, uncertainty and its effects cannot be fully captured simply by looking at probability distributions relating to a loss function (pretending in the process that an aleatory analysis will serve for all types of uncertainty). This is a restricted understanding of uncertainty that only gives the appearance of invalidating the sceptics’ concerns. Rather, sceptics do have a legitimate interest in worrying about the uncertainty levels, if only because the levels are thwarting meaningful risk efficiency calculations. The worrying thing is that you can do more harm through being risk inefficient than by not being sufficiently risk averse. That’s why risk managers focus upon risk efficiency so much.
Of course, this doesn’t answer the question regarding which of the two concerns is the more important when it comes to climate change: Is it the potential increase in risk caused by uncertainty, or the potential decrease in risk efficiency, also caused by uncertainty? Well, the problem with this question is that it cannot be answered straightforwardly. We have long since left behind the realms where ‘simple mathematics’ can provide an answer. It’s not just a lack of understanding of the formal relationship existing between uncertainty and risk efficiency, it’s not just the uncertainties regarding the probabilities upon which risk calculation is based; it’s not just the uncertainties regarding the form of the pareto optima curve for risk reduction; it’s not even the uncertainties that have been smartly overlooked by the economists that claim they understand the general form of the loss function. It is, instead, a problem resulting from all of the above. Uncertainty is trashing the whole show and (for all we know) one could end up spending a fortune on risk mitigation actions for a problem that is not nearly as serious as is claimed, cannot be addressed by the chosen mitigations, and can end up transforming into a new problem that is just as bad as the one we seek to avoid. There again, everything could be fine as long as we listen to Stephan and James.
Back at the duel, Stephan and Willard were looking perplexed. Stephan had aimed his gun straight and true, and yet Ben refused to go down. Willard thought this bizarre, until he remembered an important fact: Ben is just another denier who has been slain but doesn’t realise it. He walks on, like a zombie, denying the undeniable fact of his demise. Stephan had delivered his silver bullet, but you can’t kill zombies with a silver bullet; that’s for werewolves. The only way to kill a zombie is to decapitate it. Lacking a suitable instrument to perform such a gruesome deed, Stephan and Willard walked away, bemused but entertained by Ben’s ridiculous ‘survival’. Only Ben and the overly inquisitive tree seemed to know that Stephan had missed his target.
Stephan lost the duel, boys and girls, but that’s what you get when you underestimate the power of uncertainty. You can’t expect the unexpected.
 Don’t worry, boys and girls, it wasn’t Mann’s magic bristlecone pine tree.