Catastrophe Planning

I have this habit of scenario planning - looking a low probability events and weighing the costs and benefits. It bothers many people (especially the Trustees committee of Armstrong Chapel). For example - even if the probability of a catastrophe is minuscule - you must estimate the costs/liability and create an expected value and compare that with the cost of managing that risk. If BP had performed this type of planning the oil spill in the Gulf might have been avoided.

This comes into play personally when deciding what, and how much insurance to have - health, auto, home, business and umbrella. These are non-trivial decisions. It seems easy to save a buck in insurance for a low probability event. Risk is a way of life, afterall. But like the book "The Black Swan" - it's those minuscule events that creates the catastrophe.

TomR moved in early to a house (without the proper timing on insurance) only to have it burn to the ground. JackD had a house burn down during construction without the proper insurance and certificates. Just ask around and you will hear examples of what you think are minuscule events happening to good people.

Catastrophe planning is not about being a pessimist - it's being a good statistician.