How To Think About Economic Risk

Jun 4 2012 @ 8:44pm

Economic_Scenarios

Grep Ip considers the risks to the Chinese, American and European economies. Felix Salmon charts the possibilies:

Ip puts the chance of a Chinese hard landing at 20%; of the euro falling apart at 40%; and of the US fiscal cliff actually happening at 30%. Individually, each of these risks is bearable. But make the reasonable assumption that they’re independent variables, and it turns out that if you put them all together, the chances of none of them happening are just one in three. But let’s go a bit further. Let’s say that if none of these things happen, that’s Good. If one of these things happen, that’s Bad. If two of these things happen, that’s Dreadful. And if all three of these things happen, that’s Apocalypse. Then this is the result that you get.