A Precautionary Tale of Uncertain Tail Fattening
AbstractSuppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18144.
Date of creation: Jun 2012
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- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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- In Chang Hwang & Richard S.J. Tol & Marjan W. Hofkes, 2013. "Active Learning about Climate Change," Working Paper Series 6513, Department of Economics, University of Sussex.
- Hwang, In Chang, 2014. "Fat-tailed uncertainty and the learning-effect," MPRA Paper 53671, University Library of Munich, Germany.
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