Comparing Everyday Costs vs. Existential Risk
An example illustrating the difficulty of valuing catastrophic outcomes is the comparison between everyday misfortunes and existential threats. We can readily assess that a broken leg is worse than a rainy day at the beach. However, this familiar scale of comparison breaks down when trying to weigh these against the potential cost of human extinction, making it difficult to integrate such a risk into a standard analytical framework.
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Ch.8 Economic dynamics: Financial and environmental crises - The Economy 2.0 Macroeconomics @ CORE Econ
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Evaluating Long-Term Catastrophic Risk
A policymaker states, 'It is illogical to spend billions on mitigating a 1-in-10,000-year catastrophic event when that same money could be used to solve immediate, tangible problems like improving our nation's healthcare, which affects millions daily.' Which of the following statements best identifies the fundamental analytical challenge in the policymaker's comparison?
The same analytical framework used to determine that spending $5,000 on a necessary home repair is a better use of funds than spending it on a luxury vacation can be directly and effectively applied to weigh the economic cost of preventing a global famine against the cost of building a new sports stadium.
The Limits of Cost-Benefit Analysis