Let me being by acknowledging Heiko's points.
In my opinion, it is in fact the uncertainty that partially saves us
from a mathematically pathological calculation.
Only partially, though. Back when sci.environment was functional
Steinn Siegurdsson discussed this matter with regard to large asteroid
impacts. It is reasonable to consider the cost of an impact sufficient
to obliterate all animal life on earth as infinite. The risk of being
imacted by an asteroid, though tiny, is not strictly speaking
infinitesimal.
Similarly, once the jackpot in a lottery exceeds the point where the
expected payoff is larger than the expected cost, is it rational for
me to sell or mortgage everything I can to buy lottery tickets?
There is indeed something missing here. I don't claim to know how to
handle this class of problem in detail. I'd welcome any substantive
quantitative ideas.
Getting back to grinding my axe, though...
My complaint is that I can see that the present method is increasingly
ill-suited to the actual policy decisions we must make, as our powers
of modification become larger.
The present method is based on a medium of exchange which operates
unidirectionally in time: we can affect the economics of the future,
but the future cannot affect our economics. There is a sort of free
trade assumption in which the trade partners are absolutely incapable
of stating their preferences.
The rational consequence (to the individual self-motivated investor)
works out to be a specific discount rate. This discount rate is based
primarily on what will happen to the medium of exchange, presuming
nothing terribly unfortunate happens. This is where the handwaving
becomes most frantic. It is, I believe, assumed without proof that
this discount rate is the same as that which needs to be applied in
policy decisions; i.e., that the rational collective action is the
same as the rational individual action.
I am not even convinced that the rational metric of collective action
is commensurable with currency at all. Even if it were, the question
of how to discount future events is fraught.
Not everything we do is about money, though it's hard to tell
sometimes. For instance, we no longer care about whether slavery is
economical. We have reached a moral consensus that the economic value
of slavery is moot. We just won't do that.
How much should we expend to avoid a non-economic damage; say
premature mortality of a million people of random age. I agree we must
measure this and I agree we must discount it; in this I am as
hard-nosed and unromantic as any right-winger. I am arguing that the
discounting must be entirely based on the uncertainty. A 50% chance of
killing a million people in 2008 or a 50% chance of killing a million
people in 20080 strike me as equally moral choices. Similarly for
losing a million species, or submerging a million acres of
historically important sites. These are things we must avoid, to the
extent we can, forever. There is no moral justification for ignoring
the distant future.
Again, I agree that uncertainty must be accountedf for in the
calculation, and I acknowledge that its effect will have some
similarities to standard discounting. I simply point out that they are
not at all the same. Our present-day commitment to sea level rise and
possibly to clathrate releases is not in any sense morally justified
by the likelihood that these problems will peak long after our great
grandchildren have passed away. In fact, we need to pay special
attention to these matters as a moral concern precisely because the
marketplace can be relied upon to discount them utterly.
Finally, as for the prevention of another ice age, I agree with Heiko
that this also becomes our responsibility henceforth. Nature has been
lucky so far, but now we need to be smart. There is no guarantee that
our planet will remain habitable indefinitely. (A mystical viewpoint
would be that Gaia noticed her long-term depletion of atmospheric CO2
and created us to fix it! Perhaps this view will win over the more
committed Luddites eventually...)
Which brings up the question of why we are so hasty to use up our
ammunition when that ice age obviously isn't imminent, even if it
originally would have been. (Opinions differ on whether another ice
age is naturally due about now; it's generally accepted that if so, it
has been cancelled, and the next candidate onset is some tens of
thousands of years into the future.)
mt
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