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Subject:  Re: modeling terrorism risk Date:  4/23/2002  5:24 PM
Author:  galagan Number:  202 of 297

Interesting article.

One of the things that interests me about the process of attempting to integrate some kind of insurance-coverage model into terrorism is the degree to which models like the one in this article take into account any sort of consequential damages. Is $40 billion the actual physical damage plus some allowance for the people who were killed and the direct lost work time for those displaced by the attacks? Does it at all take into account the fact that no one I know was particularly productive for the week following? Indeed, should it?

The best example I've seen of taking a large portion of consequential damages into account was the Y2K insurance craze. I'm not sure whether or not this was the result of poorly written policies that insurers concluded would force them to pay Y2K-related claims. I wonder, however, how much good a model of direct consequences of an attack does for the economy as a whole - in other words, how much of the effect of an attack is direct?

I definitely agree with the author that the assumption that an attacker is a rational, "value"-maximizing individual is sketchy at best.

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