TY  - JOUR
AU  - Weitzman,Martin L.
TI  - A Precautionary Tale of Uncertain Tail Fattening
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18144
PY  - 2012
Y2  - June 2012
UR  - http://www.nber.org/papers/w18144
L1  - http://www.nber.org/papers/w18144.pdf
N1  - Author contact info:
Martin Weitzman
Department of Economics
Harvard University
Littauer 313
Cambridge, MA 02138
Tel: 617/495-5133
Fax: 617/495-8570
E-Mail: mweitzman@harvard.edu
AB  - Suppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain.  The paper shows how a basic precautionary principle of tail fattening could then apply.  The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities.   A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.
ER  -