Fran Wilde’s Statistical Thinking Fail

“This report has taken a worst-case scenario – a Wellington Fault rupture measuring 7.5 on the Richter scale,” Ms Wilde said.

“It is important to stress that the chances of a quake of this magnitude in the near future are small. A major rupture is predicted to occur approximately every 840 years, and since the last one was 300 years ago, hopefully we have some time to build our resilience.”

 – Fran Wilde on the Wellington earthquake report

When it comes to earthquakes in New Zealand, making statements like this is criminal. Just because something hasn’t happened for hundreds of years doesn’t mean it can’t happen tomorrow – the distribution of massive earthquakes isn’t like the distribution of height in the population!

The reality is that we have no idea, despite enormous research into earthquakes and a massive databank of what has happened in the path, when the next earthquake will happen. The Christchurch earthquake was a perfect example of Nassim Taleb’s “Black Swan” events. We couldn’t predict it and we had no idea how badly it would affect our people and our economy.

Because of the enormous effect a big earthquake would have on Wellington, the planning can’t rely on one not happening for a while. Accelerated earthquake preparations post-Christchurch are the only rational course of action. Yes, there is a cost associated with these preparations. But in the wake of the Christchurch tragedy, why haven’t we changed our approach to earthquake planning? Why are we using fraudulent models?

Strengthening buildings and building alternative transport links out of Wellington are scratching the surface of the changes actually needed to build a capability to absorb another natural disaster shock. If we are blowing out the deficit and going nuts on infrastructure spending, let’s destroy long-term finances properly with government bankrolled strengthening programs.

I’m only half-joking. The massive impact of the Christchurch earthquake shows that we are in an extremely precarious position if a massive earthquake hits Wellington or a tsunami hits the Bay of Plenty. If I was an EQC official I would be “camouflaging” re-insurance purchasing through offshore shell companies so that New Zealand can get “no questions asked” re-insurance on the cheap. It can be done if you know how the insurance market really functions – there’s always a mug on the other side of the trade.

That would increase the re-insurance purchasing power of the EQC fund. It’s sneaky, but that’s the sort of thinking the government needs to adopt in order to lower the cost of non-predictable but entirely plausible major natural disasters hitting New Zealand before we’ve fully recovered from the Christchurch earthquake.

To paraphrase Nassim Taleb, risk management isn’t a science, it’s a craft. Building fancy models that spit out “1/10 chance over 100 years” are useless. The system is fragile because so many things we haven’t thought about “pre-disaster” will stop functioning and cause a lot of additional effects. The next big one we didn’t predict will be our national undoing.