Events ranging from Hurricane Katrina to the global economic crisis have taught businesspeople an unforgettable lesson: if you don’t plan for “extreme risk,” you endanger your organization’s very survival. But how can you plan for events that go far beyond anything that occurs in normal day-to-day business? In Learning from Catastrophes, two renowned experts present the first comprehensive strategic framework for assessing, responding to, and managing extreme risk. Howard Kunreuther and Michael Useem build on their own breakthrough work on mitigating natural disasters, extending it to the challenges faced by real-world enterprises.
Along with the contributions of leading experts in risk management, heuristics, and disaster recovery, they identify the behavioral biases and faulty heuristics that mislead decision makers about the likelihood of catastrophe. They go on to identify the hidden links associated with extreme risks, and present techniques for systematically building greater resilience into the organization. The global best-seller The Black Swantold executives that “once in a lifetime” events are far more common and dangerous than they ever realized. Learning from Catastrophe shows them exactly what to do about it.
Breakthrough, business-focused techniques for managing the growing risks of catastrophe, from world’s leading experts.
Foreword by Klaus Schwab xiii
Preface by Howard Kunreuther and Michael Useem xv
Part I: Setting the Stage
Chapter 1: Principles and Challenges for Reducing Risks from Disasters 1
Howard Kunreuther and Michael Useem
Chapter 2: Acting in Time Against Disasters: A Comprehensive Risk Management Framework 18
Herman B. “Dutch” Leonard and Arnold M. Howitt
Part II: Linking Risk Assessment, Risk Perception, and Risk Management
Chapter 3: Forecasting and Communicating the Risk of Extreme Weather Events 41
Geoff Love and Michel Jarraud
Chapter 4: Cognitive Constraints and Behavioral Bias 64
Chapter 5: The Five Neglects: Risks Gone Amiss 83
Alan Berger, Case Brown, Carolyn Kousky, and Richard Zeckhauser
Chapter 6: Can Poor Countries Afford to Prepare for Low-Probability Risks? 100
Michele McNabb and Kristine Pearson
Chapter 7: The Role of Risk Regulation in Mitigating Natural Disasters 121
Bridget M. Hutter
Chapter 8: Hedging Against Tomorrow’s Catastrophes: Sustainable Financial Solutions to Help Protect Against Extreme Events 139
Erwann O. Michel-Kerjan
Part III: Applications to Catastrophic Risks
Chapter 9: A Financial Malignancy 156
Suzanne Nora Johnson
Chapter 10: Climate Change: Nature and Action 170
Thomas E. Lovejoy
Chapter 11: Lessons from Risk Analysis: Terrorism, Natural Disasters, and Technological Accidents 177
Detlof Von Winterfeldt
Chapter 12: Turning Danger to Opportunities: Reconstructing China’s National System for Emergency Management After 2003 190
Lan Xue and Kaibin Zhong
Chapter 13: Dealing with Pandemics: Global Security, Risk Analysis, and Science Policy 211
Jiah-Shin Teh and Harvey Rubin
Part IV: Innovation and Leadership
Chapter 14: Long-Term Contracts for Reducing Losses from Future Catastrophes 235
Chapter 15: Developing Leadership to Avert and Mitigate Disasters 249
About the Authors 307
World Economic Forum Global Agenda Council on the Mitigation of Natural Disasters 313
Howard Kunreuther is the Cecilia Yen Koo Professor of Decision Sciences and Public Policy at the Wharton School, and Co-Director of the Wharton Risk Management and Decision Processes Center. He has a longstanding interest in ways that society can better manage low-probability, high-consequence events related to technological and natural hazards. He is a member of the OECD’s High Level Advisory Board on Financial Management of Large-Scale Catastrophes, a fellow of the American Association for the Advancement of Science (AAAS) and distinguished fellow of the Society for Risk Analysis, receiving the Society’s Distinguished Achievement Award in 2001. He is the recipient of the Elizur Wright Award for the publication that makes the most significant contribution to the literature of insurance.
Michael Useem is William and Jacalyn Egan Professor of Management and Director of the Center for Leadership and Change Management at the Wharton School, University of Pennsylvania. He is author of numerous books, including The Go Point, The Leadership Moment, and Investor Capitalism. He has presented programs and seminars on leadership and governance with corporations, government agencies, and non-profit organizations worldwide and has consulted on organizational development and change with the U.S. Agency for International Development, U.N. Food and Agriculture Organization, and companies and other organizations in Latin America, Asia, and Africa.