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Survivorship bias

A long overdue followup:

After this thread on Econbrowser, I stumbled (randomly) on the term which seems to match what I was trying to get across, which is basically in the Peak Oil case:

We are the result of a bunch of transitions, all successful, from a lower-density energy source to a higher-density energy source. Many other societies which could not find a higher-density energy source ended up in overshoot and collapsed - but, of course, they aren't around to serve as a cautionary example.

Path bias.

There's not any guarantee that an economically feasible energy source even at petroleum's energy density is out there waiting for us. Nuclear + major battery improvements, for instance, doesn't even cut it; nor does anything using hydrogen as its energy store.

Physics trumps economics.

The term is survivorship bias and it usually arises in the world of finance, but has applications elsewhere. In short, if the things you're studying are those that survived previous transitions/calamities/events/whatever, you may either have an inaccurately high rating of the current 'survivors' or you may assume that all such transitions are successfully navigated.

In the Peak Oil case, this fallacy rears its ugly head as people bring up "well, we survived Peak Wood and Peak Horse and Peak Whale". But there were societies that did not survive, because they didn't find a higher-density energy substitute in time. We just don't hear about them, because they aren't AROUND anymore. They overshot their resources and didn't find an alternative, and they died out.

This entry was posted in the following categories: Economics

Comments

The anti-peak oil argument is more subtle than that.

The crux of the issue is this: Should we reallocate our resources today in anticipation of a potential future scarcity? The peak oilers say yes, although they differ in how much reallocation is necessary.

The anti-peak oilers say no. Here's the argument, at least as I see it:

(1) Reallocating resources today will cause certain and quite genuine economic loss. (E.g., reserving valuable urban land as marginally productive farmland, a common peak-oiler policy recommendation.)

(2) The peak oilers assume that we should reallocate resources today because it will be easier now than when scarcity sets in. But that's got to be wrong. What matters is the price of energy relative to other goods. We can't possibly know what that relative price will be in 10 or 20 or 30 years. For example, it "costs" an average worker X minutes of labor to drive one mile. How much will it cost an average worker, measured in minutes of labor, to drive one mile 20 years from now? That depends not only on how much oil's left, but on increases in average productivity, technological innovation (substitutes for oil or the combustion engine), and the amount of demand for driving one mile. No one know what that relative price will be in 20 years. Anyone who says he does know is practicing religion, not science or economics.

(3) Because we do not know what the relative price will be in 20 years, it is foolish to reallocate resources today based on a wild-assed guess. Rather, it is better to let rising prices encourage efficient conservation and reallocation of resources, as well as technological innovation. (We should diversify our energy base, but not because of peak oil. Diversity will cushion us against sudden shocks to our oil supply.)

The "cornucopian" part of this argument is (2), where people like me say that energy may be cheap in the future because of technological innovation. No, technological innovation is not guaranteed. But technological innovation is a possibility, and a real one based on past results. The constant technological innovation that's going on around us -- innovation unmatched by any society, past or present -- is relevant to our capacity to innovate in the future.

Peak oilers generally refuse to recognize the possibility of technological innovation; that's where they fall into the malthusian trap. Once we recognize that innovation is a genuine possibility, then it's hard to say that we should incur a certain loss today to avoid a speculative loss tomorrow, particularly when we don't know how to reorganize things to avoid that loss.

I agree that the hard-core peakers are idiots. But consider that current public policy is at least 5 sigmas away from neutral - not in the direction of moving AWAY from cheap oil, but in the direction of subsidizing development that essentially depends on cheap oil. People will not get the market message that the suburban SOV SUV 20,000 miles per year lifestyle is on the way out if our zoning codes and tax laws continue to artificially reward it.

It will not be cheap to rebuild the suburbs (or to somehow provide transportation to those poor souls stuck in cul-de-sac-land - some people think we can just run more buses without considering the cost-effectiveness of running any kind of mass transit through that topography).

So, at a bare minimum I'd say we ought to move a sigma past neutral in the "oil's probably not going to be cheap going forward" direction. Not ten sigmas, as the Roger Bakers of the world would have us do; and not twenty, as the true hard-core peakers like Kunstler would do, but at least LEAN in the direction we suspect we're going to need to go.

The physics argument about the energy transition still stands. We can innovate our way to better cars that use LESS gas, but there are fundamental physical laws at play here (thermodynamics, for instance) which are going to make it nigh-impossible to exceed the energy density and EROEI on petroleum. And, no, people didn't say that about Peak Whale, Peak Horse, Peak Wood, etc. - because at that point scientists knew other energy forms existed, and that they held the potential for exploitation at least on a physics ground. We don't see anything like that today.

Yeah, I doubt we disagree much on policy prescriptions. I think most of the things you advocate, maybe all of them, can be justified on non-peak oil grounds.

I don't know what will be physically possible. We may all be driving around in super golf carts that can't go more than 100 miles without recharging. I'll bet we can do better than that, even if 3,000 lb. cars with top speeds of 100+ mph and ranges of 250+ miles are no longer practical.

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