low-probability-high-impact

When circumstances are favourable, animals build up layers of fat. This insures them against any serious disruptions in the local food chain. Firms keep "excess" cash and ready-to-draw credit lines in order to protect themselves against future liquidity shocks. None of these insurances come for free. Building and carrying around extra layers of fat is energy-consuming. Credit lines require upkeep fees and undeployed cash has an opportunity cost.

Question 1: Why do firms generally not insure themselves against low-probability-high-impact events?

That is because the cost of doing so is likely to be higher than the probability weighted gains. (Of course the calculations involved here are strictly subjective. Overestimations and unestimations are quite common.) An elderly CEO who has vivid memories of such an event may choose to follow conservative and full-proof strategies. A young and over-confident CEO may have different thoughts.

Most animals can not plan ahead. Hence calculating the probability weighted gains entailed by various insurance mechanisms is not even an option for them. Any preparation that occurs has to take place at a genetic level.

Question 2: Could an accumulation of random DNA mutations prepare a species for a low-probability-high-impact event?

There is no a YES/NO answer to this question. Evolution does not work in a forward looking way. In fact it does not work on a strictly backward looking way neither. There is no guarantee that a species will survive future conditions that resemble those it survived some time ago.

Why? Because a mutation that was historically beneficial can be undone by another mutation. Since current circumstances may be quite different from those that prevailed during the times when the first mutation was considered "beneficial", the group experiencing the second mutation will not necessarily be at a relatively disadvantageous position.

Question 3: Could small shocks prepare a species for a large shock of a similar kind?

Again, evolution works blindly. Occasional draughts will not prepare a species for desert-like conditions. That lucky mutation may simply never occur!

Adaptation may lead to the development of a physiological capacity to learn. But this does not imply that adaptation itself is "learning".

Think of intellect as just another trait that has not yet been eliminated by environmental dynamics.

Question 4: Mass extinctions happen every 26 million years. Will we be able to survive our first destructive wave?

May be. Today evolution unfolds in two dimensions: Cultural and genetic. Soon these two will start interacting with each other. This interaction may yield the key to our ultimate survival. But who knows? Cultural evolution and the resulting accumulation of scientific knowledge could as well catalyse our own destruction.

Also, it is very likely that the unfolding of the next mass extinction will catch us by surprise. Just as we are mesmerised and stupefied by the causes of each recession!

P.S. The use of "locality" in the first paragraph may be misleading. The word is not used in a geographical sense. Each species belongs to a connected component in the universal food network. The kind of disruptions I am referring to are those that occur within this component. Hence what is "local" can change as time progresses. For example, as geological events lead to the development of new continents and the break up of the already existing ones, connected components within the food network will inevitably be altered.