Howard Kunreuther - Faculty Research in Knowledge@Wharton

Ten Years After 9/11 -- Risk Management in the Era of the Unthinkable

Fri, 09 Sep 2011 19:15:30 EST

For the entire country, the September 11, 2001, terrorist attacks confirmed that the unthinkable was possible. To the business world, it meant that being ready for a fire, a flood or a violent crime no longer represented "preparing for the worst." The attacks redefined the meaning of risk management in both the public and private sector, Wharton experts say, forcing companies and the government to rethink the ways that they prepare for, respond to and recover from large-scale disasters.

U.S. Energy Policy after Japan: If Not Nuclear, Then What?

Wed, 30 Mar 2011 14:25:28 EST

As the crisis at Japan's crippled Fukushima Daiichi plant continues to unfold, every bit of news that trickles out deepens the debate about nuclear energy. Anti-nuclear activists point to smoldering reactors and radioactive drinking water; others say the fact that the aging plant survived the earthquake and tsunami without greater damage signals its ability to withstand major disruptions. At issue is whether the expansion of nuclear power in the U.S. gets a green, red or yellow light.

Crisis in Japan: What Will the Costs Be?

Wed, 16 Mar 2011 15:44:15 EST

It may be years before the costs -- human and economic -- of the devastating earthquake and tsunami on March 11 in Japan are fully known, but they will be enormous. With thousands feared dead throughout the northeastern part of the country and officials scrambling to contain a nuclear disaster, there are now more questions than answers. Knowledge@Wharton asked four experts to share their thoughts about the impact of the disaster.

America's Aging Infrastructure: What to Fix, and Who Will Pay?

Wed, 10 Nov 2010 14:15:08 EST

In the U.S., infrastructure is usually silent and forgotten -- until the power goes off, the ATM stops working or a neighborhood is consumed by fire. In September, a 54-year-old gas pipeline exploded in San Bruno, Calif., killing eight people and damaging more than 50 homes. Seven weeks earlier, an oil pipeline rupture in Michigan spilled more than a million gallons of crude. According to experts, the country's infrastructure is a huge market that holds tremendous business opportunities, but the bulk of entrepreneurs and investors still wait on the sidelines because the projects are costly, complicated and often risky.

Crisis in Haiti: Where Do We Go from Here?

Wed, 20 Jan 2010 16:35:09 EST

The earthquake that rocked Haiti last week has caused unimaginable death and destruction, a reminder that catastrophes are usually unforeseeable and therefore almost impossible to prepare for. Can any country or region of the world, rich or poor, take meaningful steps to avoid the destruction caused by catastrophes ranging from earthquakes and hurricanes to terrorist attacks and pandemics? Knowledge@Wharton asked professors Howard Kunreuther and Michael Useem, authors of a new book titled, Learning from Catastrophes: Strategies for Reaction and Response, and Morris A. Cohen to talk about the situation in Haiti and the challenges of dealing with such crises.

Changes in the Air: What Will Come of the Copenhagen Climate Summit?

Wed, 09 Dec 2009 17:18:52 EST

More than 100 world leaders gathered in Copenhagen on December 7 for a two-week summit meeting whose ambitious aim is to renew the Kyoto protocol on climate change. The issues being discussed include reducing emissions of green-house gases and setting a price for carbon, among others. What are the likely business implications of these issues? What new challenges and opportunities will they create during the coming months? Knowledge@Wharton discussed these topics with Wharton legal studies and business ethics professor Eric Orts; Howard Kunreuther, Wharton professor of decision sciences and public policy; and Erwann O. Michel-Kerjan, managing director of the Wharton Risk Management and Decision Processes Center. An edited transcript of the conversation follows.

One War We Shouldn't Avoid: A New Approach to Reducing the Cost of Future Catastrophes

Wed, 08 Jul 2009 16:18:09 EST

In 2005, three major hurricanes -- Katrina, Rita and Wilma -- struck the U.S. Gulf Coast area, causing not just death and destruction, but also leading to insurance payments and federal disaster relief of more than $180 billion. Today, say the authors of a new book titled, At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes, the U.S. is even more vulnerable to catastrophic losses. Written by Howard Kunreuther and Erwann Michel-Kerjan, with colleagues Neil Doherty, Martin Grace, Robert Klein and Mark Pauly, At War with the Weather analyzes current thinking about catastrophes and proposes new solutions for reducing loss and providing financial protection against future disasters. Kunreuther, co-director of Wharton's Risk Management and Decision Processes Center, and Michel-Kerjan, the Center's managing director, recently talked to Knowledge@Wharton about their book.

Katrina, 9/11, Global Recession: Moving Beyond Old Thinking about New Risks

Wed, 18 Feb 2009 17:51:20 EST

Disasters just aren't what they used to be, according to experts at a recent Wharton risk management conference titled, "The Irrational Economist." Indeed, they are a lot worse. With costs adjusted for inflation, all of the 20 most-costly disasters from 1970 through 2007 occurred after 1987, and half came after 2001. One speaker predicted "an accelerating rhythm of large-scale catastrophes" such as financial crises, problems with food and energy, disease pandemics, terrorism and natural disasters.

Ebb without Flow: Water May Be the New Oil in a Thirsty Global Economy

Wed, 01 Oct 2008 17:54:21 EST

Is water the new oil? The answer is yes, according to a number of economists, business leaders, scientists and geopolitical strategists, who argue that it's time to stop taking for granted the substance that covers 70% of the planet and makes up a similar proportion of the human body. Just as the late 20^th century saw an oil shock, the early 21^st century may feature a water shock, where scarcity leads to a sharp price hike on a resource that has always been plentiful and cheap. Such a scenario could have an even bigger impact than peak oil, transforming markets, governments and ecosystems alike.

Clearing the Air: How Companies Operate in a Climate-conscious Era

Wed, 11 Jun 2008 16:25:47 EST

Where to locate a new headquarters, how to close a supply-chain loop, how to anticipate customer demands: These are all decisions that companies must wrestle with as they respond to increasing concerns about global warming. Given the rush to be environmentally friendly, where do companies turn for dependable information and good advice? Wharton faculty and other experts say companies have to rely on a combination of internal and external resources as they try not only to manage the risks of climate change, but also to gain a competitive edge.

View from Dalian, China: The New Risk Architecture and Our Growing Interdependence

Wed, 12 Dec 2007 14:47:44 EST

In early September, nearly 1,700 leaders representing business, politics, the arts and universities gathered in the city of Dalian, 600 miles east of Beijing. Erwann Michel-Kerjan, managing director of the Wharton Risk Management and Decision Processes Center, who was selected as one of the World Economic Forum's Young Global Leaders this year, attended the five-day event, which included participants from 90 countries. He offers his report on what he calls "The New Risk Architecture."

When Local Risks Become Global Risks, and How We Can Minimize Them

Wed, 21 Mar 2007 15:21:30 EST

Climate change. Middle East instability. International terrorism. Oil price shocks. Weapons of mass destruction. The world is fast becoming a riskier place, and the days of wait-and-see are no longer an option, says the World Economic Forum's recently released Global Risks 2007 report. The report, published in cooperation with Wharton's Risk Management and Decision Processes Center, identifies 23 core risks -- most of which have worsened over the last year, despite growing awareness of their consequences. It also underscores a growing disconnect between the power of these risks to disrupt the world and our ability to mitigate them.

Strategies for Dealing with the Risks of 9/11, Katrina and Other Disasters: A Conversation with Wharton Experts

Wed, 27 Sep 2006 18:51:30 EST

In the five years since the attacks on September 11, 2001, Howard Kunreuther, Wharton professor of operations and information management, has collaborated with members of the private and public sectors to determine how individuals and firms can be motivated to enhance security in our interconnected world. In a new book titled, Seeds of Disaster, Roots of Response: How Private Action Can Reduce Public Vulnerability, Kunreuther and other contributors argue that the United States will continue to be at risk for low-probability, high-consequence events like 9/11 and Hurricane Katrina until the private sector and public leadership develop strategies to persuade individuals and firms to invest in cost-effective protective measures. The book is edited by Erwann Michel-Kerjan, managing director of Wharton's Center for Risk Management and Decision Processes, and three others.

Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption

Wed, 06 Sep 2006 15:05:10 EST

When it comes to global supply chains, the potential for disruption comes in many forms, from large-scale natural disasters and terrorist attacks to plant manufacturing fires, electrical blackouts, and operational challenges such as shipping ports too small to handle the flow of goods coming into a country. Experts from BCG and Wharton say that managing supply chain disruptions revolves around two goals: first, to thoroughly understand the potential of identified risks; and second, to increase the capacity of the supply chain -- within reasonable limits -- to sustain and absorb disruption without serious impact.

Avian Flu: What to Expect and How Companies Can Prepare for It

Wed, 08 Mar 2006 16:27:20 EST

The avian flu that is steadily making its way around the globe represents a huge challenge for governments, corporations and citizens worldwide. No one knows what will happen to the avian influenza virus in the coming months and years. Will it mutate into a strain that will allow people to readily infect others? Or will it fizzle out? Despite the uncertainty, many people are taking into account scenarios ranging from mild to severe in order to plan for what could turn out to be a calamity. Faculty members at Wharton, health care professionals and risk consultants say it is important that companies assess how their organizations could be harmed by a pandemic and take preventive measures to mitigate the damage and keep their enterprises operating.

Delhi in Davos: How India Built its Brand at the World Economic Forum

Wed, 22 Feb 2006 16:56:24 EST

The emergence of China and India figured prominently at the World Economic Forum annual meeting in Davos last month. In India's case, however, another factor also was at work. Determined not to be overshadowed, Indian business and government leaders spent some two years and $4 million planning an elaborate branding campaign to ensure that the "India story" got prominent play and did not get lost amid the chatter at Davos. How does a country go about building its brand though such PR campaigns? And how can outcomes be measured to see if the campaign worked? Wharton professors who were at Davos and Indian business and government leaders say that while India's campaign at the summit was impressive, the country will now have to walk the talk on infrastructure investments and policy reforms if it wants to retain its credibility.

Hurricane Katrina: Important Policy Questions Amid the Devastation and Recovery

Wed, 25 Jan 2006 15:13:16 EST

As the Gulf Coast attempts to recover from the emotional and physical scars of Hurricane Katrina, the nation's most expensive natural disaster, Wharton and University of Pennsylvania faculty are raising questions about how society should assess and perceive risk, and how it should compensate victims when disaster strikes. A new book entitled, On Risk and Disaster: Lessons from Hurricane Katrina, by University of Pennsylvania provost Ronald J. Daniels, political science professor Donald F. Kettl and Howard C. Kunreuther, Wharton professor of operations and information management, argues that the U.S. government has become an insurer of last resort and questions whether that unofficial policy is contributing to larger and costlier disasters.

Picking Up the Pieces from Katrina: What Lies Ahead

Mon, 21 Nov 2005 14:59:00 EST

When Hurricane Andrew struck south Florida in 1992, it caused what was then the largest natural disaster in American history, with more than $30 billion worth of damage. The economic fallout from Hurricane Katrina -- which last week ravaged New Orleans, La., and the Gulf coast -- looks to be much larger; indeed, some estimates put the damages/losses as high as $200 billion. Still uncalculated is Katrina's effect on the oil and gas industry, insurers, real estate, tourism and the financial markets, not to mention the future of hundreds of thousands of people displaced by the storm. Wharton professors assess the impact of what is clearly the costliest natural disaster ever to strike the U.S.

The Financial Risks of Terrorism: Balancing Public and Private Roles

Wed, 07 Sep 2005 15:24:58 EST

Who should pay for the economic consequences of a terrorist attack in the United States? This week, the Wharton Risk Management and Decision Processes Center publishes TRIA and Beyond, an analysis of the Terrorism Risk Insurance Act of 2002 (TRIA), which will expire December 31, 2005, if not renewed. The Risk Center's report offers policymakers, key industry representatives and other interested parties an analysis of what roles the public and private sectors should play with respect to terrorism risk coverage in the United States.

Catastrophe Modeling: A New Approach to Managing Risk

Wed, 06 Apr 2005 17:18:11 EST

Before Hurricane Hugo swept through parts of the southern U.S. in 1989, the insurance industry had never suffered a loss of more than $1 billion from a single disaster. Since then, numerous catastrophes have exceeded that figure, even as development in danger zones continues to increase. It's a trend that emphasizes, as never before, the need to manage risk on both a national and a global scale. "People today are asking the question, 'How do we scientifically evaluate catastrophic risk?'" says Wharton's Howard Kunreuther, co-author -- along with Patricia Grossi -- of Catastrophe Modeling: A New Approach to Managing Risk. The book analyzes the role of catastrophe modeling in developing risk management strategies to help reduce losses from future disasters, ranging from floods and hurricanes to environmental damage and terrorism.

In the Tsunami's Wake: How Best to Respond

Fri, 28 Jan 2005 04:47:29 EST

Wharton professor Jean LeMaire came to Thailand last month to lead a seminar on insurance in Bangkok. Before the seminar even began, he would witness, from the uncomfortably close vantage point of a beach in Phuket, the kind of disaster that haunts insurers and humanitarian relief agencies for months to come -- the devastating Asian tsunami that is estimated to have killed more than 170,000 in 11 countries. The scale of the tragedy and the outpouring of concern from around the world have raised the tsunami to a new level of natural disaster, and calls for a new level of response.

Forging a Link Between Shareholder Value and Social Good

Mon, 19 May 2003 00:00:00 EST

To endure and build long-term value for shareholders, companies must also do well by society, according to speakers at a recent symposium titled, �Building and Valuing a Firm�s Sustainability Strategies,� sponsored by the Wharton Social Impact Management Initiative. Poverty, globalization and the environment all have an impact on business, yet are often perceived as issues that fall beyond the responsibility of corporate management. That shouldn�t be the case, argued symposium participants, who discussed the challenges of operating within the context of a worldwide community.

To Pay or Not to Pay: Business Weighs the Cost of Terrorism Coverage

Wed, 07 May 2003 00:00:00 EST

Nearly two years after the September 11 terrorist attacks, businesses continue to wrestle with the issue of whether to buy terrorism insurance. Confronted with high premiums and their own skepticism about whether such coverage is necessary, many managers are deciding against it. At a conference sponsored by the Wharton Risk Management and Decision Processes Center on April 28, insurers, reinsurers, academics and modelers discussed the risks of terrorism and other �extreme events.�

The Business Implications of SARS

Wed, 23 Apr 2003 00:00:00 EST

As of April 23, at least 251 people worldwide had died of severe acute respiratory syndrome (SARS). That is far, far fewer than the number who die from the flu, accidental falls or car crashes each month in the United States. Yet since SARS first came to public attention in March, the mysterious illness has disrupted global business and vacation travel plans, prompted downward revisions to economic forecasts and jeopardized the health of thousands of small businesses in Asia. Knowledge@Wharton interviewed Wharton faculty, U.S. companies and business people in Asia for their views on how this new strain of pneumonia is affecting the global community.

How Far Should Business Go to Protect Itself Against Terrorism?

Wed, 26 Feb 2003 00:00:00 EST

Amid the huge national effort to guard against any future terrorist attack, the private sector faces particular challenges. As custodians of an estimated 85% of the nation�s infrastructure, businesses are faced with a daunting list of tasks and questions on how to protect their buildings, systems and employees from an assault that, in the current geopolitical atmosphere, seems increasingly likely.

Risk Management Strategies to Protect Firms Against Catastrophic Events

Wed, 09 Oct 2002 00:00:00 EST

Wharton professor Howard Kunreuther looks at the bankruptcies of Barings Bank and Arthur Andersen, and the severe losses incurred by Union Carbide and Lloyd�s of London after a series of disasters, and he sees a common thread: How the actions of one division or plant severely damaged the whole company. In a recent paper, he analyzes the challenges organizations face in dealing with low-probability events that have large-scale consequences. He looks specifically at how divisions within firms can be encouraged to invest in protective measures when other divisions don�t.

Could a Cyber-Terrorist Take Down Your Company? Don�t Wait to Find Out

Wed, 28 Aug 2002 00:00:00 EST

For companies that move millions of dollars around the globe, discovering that a hacker is transferring funds into private accounts can be traumatic. How can companies identify their areas of vulnerability and set up defensive processes? As Wharton professors told participants at a conference about last month, one way might be to set up a �destroy-your-brand� exercise.

How Will Insurers Deal With Their Most Expensive Catastrophe?

Wed, 26 Sep 2001 00:00:00 EST

Every past catastrophe is dwarfed by the impact that the terrorist attacks will have on the insurance industry. Among the issues that shell-shocked insurers and re-insurers are grappling with are workers� compensation losses, business interruption losses and property losses. Estimates suggest the industry�s exposure could be anywhere between $15 billion and $40 billion. Wharton professors and industry experts offer some suggestions, including a stronger role for the government as the �insurer of last resort.�

How Deception, Reputation and E-mail Can Affect Your Negotiating Strategy

Wed, 23 May 2001 00:00:00 EST

How widespread is deception in negotiation and how can you detect it? What are the pros and cons of using e-mail during the negotiating process? How does a good, or bad, reputation influence the outcome of a negotiation? In a new book entitled �Wharton on Making Decisions,� three faculty members discuss these issues and offer advice on how to improve your bargaining ability.

How Bad Decisions Can Lead to Billion-Dollar Mistakes

Thu, 22 Feb 2001 15:57:06 EST

�What is the cost of poor decisions?� asks a new book by Wharton faculty entitled, Wharton on Making Decisions. Drawing on examples that include Barings Bank trader Nick Leeson and the explosion of the Challenger space shuttle, editors Stephen Hoch and Howard Kunreuther show how a �complex web� of poor decision making can be expensive and/or tragic. The editors and 14 other faculty members look at the decision-making process from the perspective of both individuals and groups.