Like many forms of presenting facts, not least of all about risk, reducing complex and multifaceted information to a single figure does a dis-service to those affected. The classical risk equation is another example of this; summing, summing many hundreds of fluctuating variables to one figure.
Perhaps the saddest expression of this kind of approach to numerology is the stock market. We accept that the bulk of the economy is based on small companies but the stock exchanges have their “Top 100″ or “Top 50″ which are all large companies. Perhaps they do have an effect on the economy the same way that herd of elephants might, but the biomass of this planet is mostly made up, like our economy, of small things.
Treating big things like small things leads to another flaw in the ALE model. (which is in turn part of the fallacy of quantitative risk assessment)
The financial loss of internet fraud is non-trivial but not exactly bleeding us to death. Life goes on anyway and we work around it. But it adds up. Extrapolated over a couple of hundred years it would have the same financial value as a World Killer Asteroid Impact that wiped out all of human civilization. (And most of human life.)
A ridiculously dramatic example, yes, but this kind of reduction to a one-dimensional scale such as “dollar value” leads to such absurdities. Judges in court cases often put dollar values on human life. What value would you put on your child’s ?
We know, based on past statistics, the probability that a US president will be assassinated. (Four in 200+ years; more if you allow for failed attempts). With that probability we can calculate the ALE and hence what the presidential guard cost should be capped at.
Right? NO! Read the rest of this entry »
