Risk is defined as the probability of something happening multiplied by consequences of its occurrence.  Engineers expend considerable time and effort in reducing the consequences of the quite probable such as ensuring the passenger compartment of a car will remain largely intact during a crash.  The installation of automatic breaking systems on some cars is also an attempt to reduce the probability of an impact, i.e. the occurrence of a crash.  It is difficult to anticipate the very low probability event with catastrophic consequences and so cars are not designed to deal with meteors dropping out the sky or even elevated highways collapsing in an earthquake.   These are what Nassim Taleb, labels Black Swan events but would perhaps be better named after another bird, the more humble turkey.  An American turkey is fed daily by a friendly human and has no idea in November that Thanksgiving is about happen with fatal consequences, or substitute December and Christmas for a British turkey.  From the turkey’s perspective everything is fine down on the farm until it isn’t; in other words, the very low probability event with catastrophic consequences occurs.  From the farmer’s perspective, turkey for dinner at Thanksgiving is close to a certainty, i.e. a probability of one.  The problem for engineers designing machines is to have the perspective of the farmer and not the turkey.

Happy Thanksgiving to my American readers!

Source:

Nassim Nicholas Taleb, The Black Swan – the impact of the highly probable, London: Penguin Books, 2008.