Business

What could be worse than the Gulf spill?

Font Size:

The Exxon Valdez spill in 1989 cost $5 billion to clean up, a huge sum that people assumed would be hard to exceed. Not exactly. BP has lost $70 billion in market capitalization since the Deepwater Horizon exploded on Apr. 20–one estimate, perhaps, of how much the disaster will ultimately cost the British oil company.

When it comes to catastrophes, history can tell you only so much. There is no smooth probability transition between $1 billion problems and $10 billion or $100 billion problems. Insurance experts call these accidents “fat-tail” events. By that they mean if you plot probabilities against accident size you do not get the rapid tapering off of odds found on the classic bell curve. In other words, giant accidents are not as rare as you might think after studying small accidents.

Full story: What Could Be Worse Than The Gulf Spill? – Forbes.com