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November 17, 2012

Stanford expert: 'Black swans' and 'perfect storms' become lame excuses for bad risk management

Instead of reflecting on the unlikelihood of rare catastrophes after the fact, Stanford risk analysis expert Elisabeth Paté-Cornell prescribes an engineering approach to anticipate them when possible, and to manage them when not.

Her research suggests that other fields could borrow risk analysis strategies from engineering to make better management decisions, even in the case of once-in-a-blue-moon events where statistics are scant, unreliable or non-existent.

Paté-Cornell argues that a true "black swan" – an event that is impossible to imagine because we've known nothing like it in the past – is extremely rare. The AIDS virus is one of very few examples. Usually, there are important clues and warning signs of emerging hazards (e.g., a new flu virus) that can be monitored to guide quick risk management responses.

The attacks of 9/11 were not black swans, she said. The FBI knew that questionable people were taking flying lessons on large aircraft. And a group of terrorists seemed to have had a similar plan in 1994, when they took over in Algiers, Algeria, an Air France aircraft bound for Paris.

Similarly, she argues that the risk of a "perfect storm," where multiple forces join to create a disaster greater than the sum of its parts, can be assessed in a systematic way before the event because even though their conjunctions are rare, the events that compose them – and all the myriad events that are dependent on them – have been observed in the past.

"Risk analysis is not about predicting anything before it happens, it's just giving the probability of various scenarios," she said. She argues that systematically exploring those scenarios can help companies and regulators make smarter decisions before an event in the face of uncertainty.

An engineering analysis could also be used to examine the development and potential impacts of what are considered by many to be unlikely new technology but with potentially very high impact.

Greater than human level artificial intelligence
Massively scaled quantum computing
Molecular nanotechnology
Inexpensive nuclear fusion for energy and space propulsion
Radical life extension
Mach effect propulsion



Systematic analysis could be made of how society would be impacted by lowering the cost of energy generation by 2 times, 5 times, ten times, one hundred times or one thousand times. The analysis could look at obstacles to achieving the full benefits such as the next largest cost components (energy distribution, costs in energy usage etc...)

Perfect Storms

She argues that the risk of a "perfect storm," where multiple forces join to create a disaster greater than the sum of its parts, can be assessed in a systematic way before the event because even though their conjunctions are rare, the events that compose them – and all the myriad events that are dependent on them – have been observed in the past.

"Risk analysis is not about predicting anything before it happens, it's just giving the probability of various scenarios," she said. She argues that systematically exploring those scenarios can help companies and regulators make smarter decisions before an event in the face of uncertainty.

I have examined technologies that are developing now in a Mundane Singularity list. I believe that will be able to interact to create a perfect storm of increased capabilities.

1. Pro-growth Policies
2. Energy Efficiency - superconductors, thermoelectrics, improved grid
3. Energy Revolution - Mass produced fission, fusion, and maybe cold fusion
4. Additive manufacturing
5. Not so mundane - neuromorphic chips, quantum computers, photonics
6. Automated transportation (leading to robotic cars and planes)
7. Urbanization MegaCities
8. Urbanization Broad Group skyscrapers, Tata flat packed buildings
9. Robotics
10. Hyperbroadband
11. Supermaterials
12. Improve medicine and public health
13. Space
14. Synthetic biology and recombineering
15. Sensors everywhere
16. Education transformed and accelerated innovation
17. Supersmartphones, exoskeletons and wearable systems
18. Memristors and other significant computing and electronic improvements.

A Mundane Singularity could bring about a large amount of
1. Economic abundance
2. Radical life extension
3. Physical and Cognitive enhancement
4. Open Access to space
5. Pollution elimination
6. Computer Advancement

The combinations could also accelerate the development of the bigger technologies
* Greater than human level artificial intelligence
* full blown molecular nanotechnology
* new physics
* radical energy generation

Factoring in Human Error

Paté-Cornell and her colleagues have long been incorporating "soft" elements into their systems analysis to calculate the probability of human error. They look at all the people with access to the system and factor in any available information about past behaviors, training and skills.

Paté-Cornell has found that human errors, far from being unpredictable, are often rooted in the way an organization is managed. "We look at how the management has trained, informed and given incentives to people to do what they do and assign risk based on those assessments," she said.



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