There’s uncertainty. Then there’s uncertainty.

Kevin Drum riffs on a Jonah Goldberg post about a global warming critic who says scientists don’t explain the uncertainty in their models:

Popular descriptions of science are always simplistic compared to the journal articles they’re based on, but even at that I’d say that virtually all the popular portrayals of climate science I’ve seen state things as a range. Warming will be between 2°C and 5°C over the next century. Sea level will rise between 33 and 100 centimeters. Drought will worsen by 23% to 65%. That kind of thing.

I highlight the passage because it shows a problem that all modelers run into, describing uncertainty completely. The ranges Kevin talks about are the ranges of results assuming the model being used is the correct one – process risk.

But as all actuaries learn, there is a much larger risk – the risk that the model being used is the wrong one. That’s called model risk. It’s much harder to describe and infinitely harder to measure. (There’s also parameter risk, but it’s not so important in the global warming debate.)

For example – flashing back to high school physics – you can model the sun and the planets as revolving around the earth, and it will do a very good job most of the time. However, that model doesn’t explain certain observations (retrograde motion), so Copernicus invented a better model – Earth and other planets revolve around the sun.

Model risk, of course is the same risk that had a hand in the financial crisis. A lot of Value at Risk analysis assumed a normal (bell-shaped) distribution of events. Most of the time, that does a great job, but at the tail – the rare events that you really care about, the bell curve crapped out. A disaster is much more likely than the bell curve would lead you to believe.

So climatologists can talk about the range of their estimates, but they should also be talking about the likelihood that their model is completely wrong.

At the same time, people who don’t believe the climatologists should be asked to do more than deny. They should be coming up with models for why temperatures have been rising for decades. And like Copernicus’ model, their models should do a better job of predicting what will happen. So far, they haven’t done so.

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One thought on “There’s uncertainty. Then there’s uncertainty.

  1. Lyle says:

    Actually what I would like to see on the climate debate is what an actuary would do. Given the best guesses as to the results calculate the costs that would result. Then given the proposed mitigation strategies what would they cost. Then go to the public and say if you are concerned about climate change we can sell you a “policy” that will protect against this level of damage for this premium. People are used to making that decision all the time, since it is the fundamental decision about insurance is the premium worth the risk.
    But since no one can agree on what the discount rate used should be there is no hope for this. (Actually again the actuary has to do that now, in that some claims may come in the future and do need to be discounted)

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