Scarcity, supply and demand, the extent of risk — we count on prices to convey critical information about these factors, and when they fail to do so, distortions and imbalances occur that, in the case of Harvey, were lethal. Insurance against flood risks was systemically underpriced for years, encouraging developers to build homes in areas susceptible to hurricane-induced floods (underpriced risk was also at the heart of the housing bubble and Great Recession). Hyperbolic discounting is a concept from behavioral economics which maintains that our innate impatience is such that we’d rather get less today than more tomorrow. We’re generally weak when it comes to delaying gratification, even when to do so would make us better off down the road. And sometimes, we so thoroughly “discount” the future that a nice house in a vulnerable flood plain becomes simply a nice house, full stop. Stagnant priors imply an unwillingness to update important probabilities based on new information. Probability theory teaches that additional information can refine our probabilities, causing us to “update our priors.” If I drew a 10 from a deck of cards, you’d correctly note that the likelihood of that draw was 4/52, as there are four 10’s in the deck. If I then told you that my 10 was red, you’d update your prior probability to 2/52. In this context, flexible priors mean that if you start having 500-year floods every few years, you update your probability about the likelihood of those floods’ occurrence. [ Want to be mad about government insurance?

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