From life insurance to earthquakes: Applying the precautionary principle

In a risk-averse society, the ‘Precautionary Principle’ (PP) (‘Better Safe than Sorry’) has enjoyed wide popularity. PP plays a crucial role in situations where scientific evidence is uncertain and the stakes are high. It has been enshrined in constitutions and has been the mainstay of a proactive climate change policy. PP suggests that the lack of full scientific certainty should not be used as a reason to postpone measures to prevent potential harm. Economists distinguish between ‘risk’ and ‘uncertainty’.

Risks vs uncertainties

In the context of PP, ‘risk’ refers to the possibility of harm or adverse effects resulting from a particular action or inaction; to so-called stochastic events: those we know will occur, we just don’t know when (with death being the most predictable). Actuarial sciences began with life insurance, as people realised the benefits of insuring themselves against the uncertainties of death. Life insurance – along with road accident and other forms of insurance – serves as a valuable tool: for the individual, it replaces a potentially large, uncertain future payment with a series of manageable, small payments. Everyone benefits, unless the actuarial data underlying the insurance policy changes between the policy’s inception and its maturity. In 1945, when social security was established in the USA (and subsequently in other Western countries), the average life expectancy was 67 years. Retiring at age 65 meant that, on average, the state only had to provide social security for a couple of years. A ‘pay-as-you-go’ approach seemed reasonable. However, life expectancy has since increased to over 80 years, leaving the state responsible for payments for 15 or more years, which is challenging the sustainability of the scheme.

‘Uncertainty’ implies a lack of complete knowledge about the potential consequences of an action; it refers to events about which we know so little that we cannot quantify them. They are often so rare that quantification is impractical. For instance, a market share crash of 10–25% in a single day may happen once in a lifetime, making it difficult to prepare for. Moreover, the long ‘lead time’ can lead to complacency: ‘It won’t happen on my watch,’ as politicians are prone to think. Thus, uncertainty often degenerates into mere hunches, prophecies, or outright ignorance. How should we deal with them? Donald Rumsfeld referred to them as ‘unknown unknowns’. They blew up in his face, did they not?

PP is primarily intended to address uncertainties. It serves as a rule of thumb, a heuristic, reflecting a more than human wariness of taking significant risks. If you don’t know how thick the ice sheet is under your feet, you will not gladly walk over the frozen lake. Makes sense, doesn’t it?

The Japanese vs the Koreans

Yes – and no. To illustrate my point, I’ll take an example from Japan. In 1923 the Big Kantô earthquake struck Tokyo and Yokohama (see Le grand tremblement de terre du Kantô by Akira Yoshimura). Many died in the ruins, most in the ensuing fires.

1923 was shortly after Japan had annexed Korea in 1905. Many Korean workers had moved to Japan to work in the factories, driven by poverty. They were certainly no fans of Japan, but they went about making a life just above the poverty line. They gathered among themselves and were mostly recognisable by the accent. As for many Japanese, they despised the Koreans, be it from xenophobia or guilt.

After the earthquake struck, a rumour started in a village that Koreans were setting fires and throwing bombs. One can trace the spread of the rumour, and it spread wide and fast. Vigilante groups emerged spontaneously in self-defence, the police being overwhelmed by the many tasks. After all was said and done, 2.613 Koreans had been killed – about 2% of all dead from the quake.

Under the PP, the authorities began to warn the population of possible Korean misdeeds. After all, who could be sure that some Koreans were not burning and bombing? By so doing, they fanned the xenophobic fire. Messages of anecdotal (if uncertain) significance percolating out of Tokyo were taken as synecdoche – our minds tend to equate the occasional with the typical, and we readily turn single events into statistics. The press chimed in, adding ‘plausible colour’ in the form of interviews of witnesses. Having copy to fill, these testimonies were invented, but they were published anyway: se non è vero è ben trovato – even though it may not be true, they ring well and true.

We have here a case of a ‘path-dependent outcome’. Rumour reinforces rumour and mass hysteria develops. Even dousing the mania with calls for self-control becomes counterproductive. The press was advised by the authorities that ‘most Koreans were law-abiding’, leaving it open that some were not. When in doubt, you kill the suspicious one in front of you, the one carrying a tinned can of food he saved from the ruins of his dwelling; after all, it could be a bomb. The PM chimed in with an appeal to observe the Koreans closely, to report their doings, but not to act, lest the image of Japan abroad be tarnished. This is counsel of perfection: the police had other fish to fry than disperse its efforts in checking rumours. Once the rumour had started, the mania took its course and very little could be done to slow it down or avoid the ensuing pogroms.

Never carry your belongings during an earthquake

The geologic situation under Tokyo also showed an example in risk taking. In 1915, many lesser tremors occurred. Were they precursors of the ‘big one’? The geological profession was split over the issue, and hard infighting ensued. (The same situation prevailed at l’Aquila in Italy in 2009, when swarms of tremors preceded the main event.) In both cases, the risk was denied by the authorities, lest people be frightened unnecessarily. Alas, the authorities took their own medicine and did little or nothing. When the ‘big one’ arrived, they were caught unprepared.

In Tokyo in particular, where lots of experience had been gathered in past major quakes, the iron rule under the Tokugawa shoguns had been quietly forgotten – no one was allowed to flee with belongings. Not only do belongings crowd the narrow streets and make movement of people difficult; embers falling on them set them on fire, and this mightily facilitated the emergence of fire storms. 38,000 people at Hifukushô burned or were trampled to death because the mass of belongings littering this huge open space burned readily and engulfed the crowd, which had felt safe there.

The line between risk and uncertainty is never drawn univocally, and a lot can be learned by studying risks closely and applying rational arguments to them. One classic example of how to apply the PP badly is its selective use. Nuclear power plants have been shown to be unsafe in earthquake situations. Fine then; show them to be resistant or close them down. But the same is true of dams. Not only can they collapse, but catastrophic landslides can push huge amounts of water over the dam. This is how over 1,200 people died at Longarone in Italy in 1964. And the landslide was not even triggered by a quake: geologists had simply failed to assess the risk properly. In the 2006 earthquake in Pakistan, most people died from landslides.

PP in such a setting has its limited role for ‘worst case scenarios’. Too often, however, it is an excuse for laziness, muddled thinking, and facile policies. PP should be thoroughly tested before it is used, including its possible collateral role in triggering manias.

This post was first publish on DeepDip.