19 January 2009

Michael Ferrari On "Anticipating the Climate Black Swan"

Winter Weather AdvisoryImage by Steve and Sara via FlickrMichael Ferrari, vice president of applied technology and commodity research at Weather Trends International, posted an interesting article in Energy Pulse last week, challenging some assumptions about warming trends:

"Contemporary economics, short-term thinking, and the need to quantify and compartmentalize our ideas in order to make sense of them, all serve to remove the 'gray area' from our sense of reasoning; unfortunately, the gray area is the source material from where the highest potential for discovery lies. Saying all swans are white was correct, until the first documentation of a black-colored species. Previous models become useless, and the world view changes in an instant.

Extending this to other areas of contemporary markets, most of the major financial risks were assumed to be properly hedged, until the recent collapse of the banking system. Weather has these Black Swans too. It follows that blindly assuming continued warming climate trends will lead to the observation of slightly warmer temperatures year over year may work for a while, until a cold snap like the one that hit the eastern US at the beginning of last winter produces one of the coldest starts to winter in many years."

Read the full article here.

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