Miracles and Catastrophes
43 Pages Posted: 25 Apr 2018 Last revised: 7 Apr 2019
Date Written: April 5, 2019
Over the last decade, a robust interdisciplinary literature has developed to guide policymakers in managing phenomena that expose society to the possibility of extreme-downside events, such as those that might result from natural disasters, terrorism, nuclear war, asteroid strike, and extreme climate change. Oddly, there is no reciprocal literature for the opposite of catastrophic risk: for phenomena that expose society to the possibility of extreme-upside events, such as might result from curing cancer or eradicating malaria, successfully colonizing other planets, ending malnutrition, developing autonomous vehicles, or implementing other transformational new technologies. Such events, which I call “miracles,” share many critical similarities with catastrophes: both involve massive impacts; invoke risk and uncertainty; generate tricky intertemporal distributions; and trigger cognitive phenomena related to each of these qualities. While miracles also differ from catastrophes in important ways—in the fact that miracles are good rather than bad; are less likely than catastrophes to invoke loss aversion; and tend to generate health, wealth, and optimism instead of their opposites—these differences are not sufficient to justify the current state of miracle neglect. Policymakers should attend to the chances of extreme-upside events, which are both possible and—at least sometimes—responsive to policy intervention.
Keywords: miracle, catastrophe, disaster, extreme impacts, loss aversion, natural hazard, risk regulation, extreme-upside, fat tails, best-case scenario
JEL Classification: K1, K23, K2, K10, K32, K30, K40, K49
Suggested Citation: Suggested Citation