The Limits of Catastrophe Aversion

We discuss the management of catastrophe‐risks from a theoretical point of view. The concept of a catastrophe is informally and formally defined, and a number of desiderata for catastrophe‐averse decision rules are introduced. However, the proposed desiderata turn out to be mutually inconsistent. As a consequence of this result, it is argued that the ``rigid'' form of catastrophe aversion articulated by, for example, the maximin rule, the maximum probable loss rule, (some versions of) the precautionary principle, and the rule proposed in Ekenberg et al. (1997, 2000) should be given up. An alternative form of ``non‐rigid'' catastrophe aversion is considered.