Earthquakes: Predicting the Unpredictable

In Italy, six scientists and a government official have been convicted of manslaughter on charges related to the deaths of more than 300 people in 2009. Each has been sentenced to six years in prison.

But those 300 people were not killed by a clinical trial gone amiss, nor were they killed by radiation leaking from an improperly contained lab. They were killed by an earthquake.

The scientists were members of the country’s National Commission for the Forecast and Prevention of Major Risks. Their “crime” was failing to predict a 6.3-magnitude earthquake that devastated the town of L’Aquila.

The quake followed a series of around 400 smaller tremors that occurred over the course of four months. A local researcher warned that these tremors, along with unusually high radon levels, were a sign of more significant seismic activity to come. The national experts, however, concluded that the tremors were likely releasing otherwise potentially destructive energy and were therefore a “favorable” sign. Following a meeting in L’Aquila six days before the disaster, Enzo Bosci, one of the convicted scientists and President of the National Institute of Geophysics and Volcanology, stated that while the possibility of a major quake could not “be totally excluded,” one was “unlikely” to occur in the short term.

As it turned out, the local researcher was correct, and the national experts were wrong. The town, which had been badly damaged by quakes three times in the past, contained a historic district with many fragile, ancient buildings, and the latest earthquake’s effects on these aging structures were devastating.

People who are in the business of trying to forecast the future are bound to be wrong sometimes. This is true of financial firms selling products whose value depends on the future performance of the housing market or some other sector of the economy. It is true of epidemiologists who try to determine the appropriate precautions to take against a potential pandemic. It happens to be especially true of those who try to predict earthquakes.

The business of earthquake prediction is a notoriously tricky one. Charles Richter, who invented the Richter scale in the 1930s, reportedly once said, “Only fools and charlatans predict earthquakes.” The scientific community’s opinion of earthquake prediction hasn’t changed much since then. In an open letter to Italian President Giorgio Napolitano written on behalf of the American Association for the Advancement of Science, Alan Leshner, CEO and executive publisher of the journal Science, explained that when it comes to earthquakes, “there is no accepted scientific method that can be reliably used to warn citizens of an impending disaster.”

The best we can do is to try to understand the limitations of our own knowledge and then make decisions based on known risks rather than uncertain forecasts. This is a key element of our investment strategy at Palisades Hudson. Instead of trying to “time” or “beat” the markets, we advise our clients about the existence of risks and help them pick investments based on their level of risk tolerance.

In the case of L’Aquila, the general risk was known. It was no secret that a major earthquake could occur in the town, because earthquakes had already occurred there – in 1349, 1461, 1703 and 1915. The convicted scientists never denied this risk. But the town failed to act on it. While knowledge that an earthquake might occur at some point is not specific enough to form a basis for evacuation orders, it should have been enough to prompt local officials and property owners to take precautions by reinforcing buildings that were not up to modern standards. They did not do this.

The Italian court’s decision will not make it any easier for scientists to foresee future earthquakes. But it has revealed another unpredictable risk, which scientists should note carefully. That is the risk posed by the Italian government itself.

The decision, like rulings handed down by Russian courts, is a sign that the country’s court system has become an uncontrolled force that could strike virtually anyone at any time. In a country rife with corruption, this should come as little surprise – though to many it will all the same. Since scientists cannot guarantee that they will always be right, or predict how Italian courts might respond if they are wrong, their only options are to stay silent or leave the country. The American Geophysical Union has already expressed concern that the ruling may prompt scientists to stop assessing seismic risks altogether, or at the least to stop offering their opinions to governments.

The convicted scientists are appealing the verdict, and their sentences will not be final until after the case has been heard by the appeals court. We can, therefore, still hope that science and reason will win out in the end. But just in case anyone in the Italian government might be reading this, I’m not willing to make any predictions.

About Larry M. Elkin 551 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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