Korean Job Discussion Forums

[Pluto]

It looks like what is being described here is what is referred to as Value at Risk (�VaR�) models as opposed to game theory. VaR modeling is used very often in finance and risk management.

VaR models give a timeline into some point in the future. For example, continuing on some course of action for the next six months will give us 99% chance of profitability. Conversely, there is a 1% chance the course of action will result in a loss or no profitability.

VaR models are extremely useful and can work quite well, except there is a catch. We can measure the risk, but the problem is we don�t know the degree of risk that falls into that unfortunate 1%. It could mean anything from breaking even to losing one�s shirt to a catastrophic oil spill. In other words, VaR doesn�t measure the cost of risk.

Here is an excellent article from the NYT magazine, far too long to post here. It is a good read.

What to do about risk and uncertainty is what insurance is for. Every human endeavor comes with a degree of risk, unfortunately. It�s just a matter of how we want to proceed.

[kotakji]

Note Senior: that I am not against the offshore drilling as I believe the overall benefits do outweigh the costs even if individual firms may end up losing the bet. I am actually interested in the hypothetical extreme situations as a lot of the work I have done in the past has involved determining government responses to epidemics, nuclear proliferation etc.

You are right, I was anthropomorphizing the probability function as the second actor- I probably should have used the term 'risk assessment' instead of game theory. Yet, the 'game' played remains essentially the same. Once a game theory equation is set up, the human/animal behaviors are often expressed as probabilistic functions.

Anyways, any thoughts on how to deal with that hypothetical?

Edit: Thanks Pluto, I was actually typing up my own corrections when you posted. My original hypothetical still stands because in the situation I presented, risk pooling (insurance) is an irrational decision. There is no critical path that ends up with a winner.

[kotakji]

[ontheway]

[kotakji]

Hehe your fast on the responses! Anyways, the point being that nuclear is not a good example because LNG and Coal were reasonable alternatives and government regulations essentially were the nail in the coffin in terms of cost effectiveness.

[Edit] note that I am wrong with the earlier post with the Brookings link. It was more the competition of other energy sources.

[ontheway]

Economic History 101:

[ontheway]

[asylum seeker]

[Senior]

[asylum seeker]

[chellovek]

[ontheway]

[chellovek]

[visitorq]

[bacasper]