I kind-of understand what clever folk at Coolabah Capital Investments have done in the paper highlighted today but whether the work has more than party-game interest I’m not sure.
You can play with their model yourself and pair up countries to arrive at a) the threat of conflict and b) the possibility of all out war at a website they’ve designed for this at predictingwar.com
The headline grabbing numbers (which led me to the work) are for the possibility of kinetic engagement and all out war firstly between China and the U.S. and then China and Taiwan, in the next ten years; and they are:
China – U.S., kinetic engagement possibility 46.1%; all out war, 11.8%
China – Taiwan, kinetic engagement possibility 75.4%, all out war, 10.5%
When smart people get into this kind of probabilistic determinism applied to human relations I get nervous.
Perhaps its that 0.1% at the end of the China – U.S kinetic engagement probability that irks, or perhaps it’s a memory that goes back to LTCM that reminds me when smarts get it wrong they tend to do so dramatically (more on that if you care, or never knew, at When Genius Failed, the Long Term Capital Management story.)?
I have found risk tends not to be microscopically quantifiable and big events usually result in binary outcomes. I prefer therefore to be prepared at all times via the simpler and altogether more workable ‘Hope for the Best, Prepare for the Worst’ philosophy.
To imagine risks such as those fingered above are quantifiable is, IMHO, as nutty as imagining a Value At Risk (VAR)-model could have value at a time of severe financial dislocation. However, as the events of 2007~2008 graphically remind too many suddenly-then-foolish former-smarts did!
You can review the work in full via this link Techniques for Forecasting Conflict
Happy Sunday.