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Tsunami and Risk

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By yttire
December 30, 2004

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An earthquake deep underwater creates a tidal wave of unknown proportion. According to Thai press, officials discounted the risk of the Tsunami because a previous 8.9 earthquake caused a tiny tsunami, which was not worth evacuating for. That incident, combined with fear of hurting tourism, caused the officials to discount the risk of the 9.1 earthquake which did indeed cause a wall of water to advance on the land killing tens of thousands.

What was the notion of risk undertaken by the Thai officials?

Some individuals made a terrifically bad decision. This is a greater disaster than the officials in Texas discounting the tidal surge, which similarly inundated a populated area and killed everyone in the vicinity. Tsunamis kill more people in the world than earthquakes, yet there is less knowledge or preparation for them. People making decisions about evacuations need to make risk decisions. If they fail to make them properly, a lot of people die. Are the leaders of the world (or the emergency warning) prepared to make such risk decisions properly? Clearly not.

Strangely, such decisions are related to investing. The stakes are much smaller in stock investing. Even if you leverage margin you may find yourself broke and in debt, but never dead. In the choice of a warning to a potential disaster you are facing a devastating loss of life. There have been Tsunami warnings issued which were false alarms. People have been [angry], and tourism hurt. People evacuated for no reason. But it is not often such false alarms have occurred. What would it have hurt to issue a false alarm? A few million in sales? Sadly, the Thai officials were afraid of losing money- afraid of hurting tourism, afraid of being sued by lawyers representing the tourist industry. Money, money, money. Fear of money costing lives. Are the dead going to sue now, rising from their graves to claim the money the government had been afraid of losing? The officials made an investment decision, and that decision has turned out to be tragic beyond belief.

It seems that before human habitation of Hawaii there were actually tidal waves, which reached as high as 1,000 feet. This was due to huge land slides off the larger islands, inundating nearby islands in a wash of debris and water which scoured the hills, leaving marks for seismologists to discover. Already, the big island shows a huge crack cleaving the island in two, implying it will happen again at some time. Perhaps not in our lives. But a 1,000 foot wall of water is going to do serious damage to the inhabitants, whoever they may be, wiping any moving living things off the face of the land. Should humanity be living on islands with such geologically active risk? Who makes these risk decisions?

If you go to the city of Pompeii, you will see the charred and horrified casts of humans who were overtaken by the ash from the nearby volcano. If you climb up a short hill, you find yourself looking out over a vibrant city of millions sitting beneath this live volcano. What are they thinking? Are they too soon to be entombed in a wall of molten ash? Should humanity be living in the shadow of such disasters, which are certain to happen again? Who is making these risk decisions?

All of these people are making investment choices. They are investing their lives, their livelihoods, in areas of disaster. Disasters strike in areas where they are foreordained. The earth is geologically active, and unless it is going to all slide into the ocean it is going to remain so. Humans have to contend with these forces, which although taking place across millennium, are much larger and more powerful than anything humanity attempts. We invest across this risk, investing lives and money.


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