This post was written more than two years ago following L'Aquila earthquake in Italy. Here we are again in the Emilia Romagna region...

This post was written more than two years ago following L'Aquila earthquake in Italy. Here we are again in the Emilia Romagna region...

Is an earthquake in Italy really a Black Swan?

An earthquake could normally be characterized as Black Swan to the extent that "first, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable".

Yet in Italy earthquakes are not exactly unpredictable one offs for which there are no precedents and so nothing to learn from. There is a great deal of information in the occurrences of an earthquake.

It appears that geophysicists know they still cannot predict when an earthquake will occur, how much its magnitude will be and where it will strike. We say that economists suffer from the same problem in their predictions: if they say when they cannot tell you how much and vice-versa. If they tell you when and how much they will fail the prediction.

However in the prediction of earthquakes, some empirical laws (e.g. power law) are known to hold, which are remarkably simple. There exist also some interesting approaches based on peculiar properties of precursory phenomena observed within complex seismic time series.

The fact that earthquakes like financial markets could be affected by the Black Swan frequency problem does not impel us to do nothing! Not at all. We can focus more and more on prevention rather than prediction and establish some ground smart rules in order to avoid financial systems to collapse in turmoil and earthquakes to raise the death toll and damages.

The recent earthquake in Italy, along the same lines of the world financial crisis, shows that somebody, particularly in Italy, still have some difficulties in making prevention to work and abide by the rules of, for example, seismic construction. Thus the debate is easily shifted from prevention and regulation to failure of predictions so that nobody is accountable. The same is in fact happening in the financial crisis. Sad similarities and news.