The Real North Korean Threat?

Judging by the muted response, the market is effectively assigning a near-zero probability on the threat of a war on the Korean peninsular.

I think that is likely misguided.

There is certainly very low probability of an US-initiated preemptive strike — the strength of the soft institutions in the US will guarantee that, regardless of what POTUS thinks and says. What is less predictable is the young North Korean leader’s actions and responses to continued threats and provocations. Conservatively speaking, the probability of a war on the Korean peninsular is lower-bounded by the probability of a North Korean missile, either a test or a targeted hit, going wrong and causing  accidental but significant damage to either South Korea, Japan, or the US.

So how do we estimate that probability?

Wikipedia provides a list of North Korean missile tests. Since 2016, there’s been 20 tests, and at least seven of which are known to have failed in one way or another. That gives us an estimate the probability of a missile failure at slightly less than 1/3. Let’s assume a failed missile has a 1/3 chance of causing damage, that gives at least 1 in 10 chance of a war on the Korean peninsular.

That, I think, is a probability that can’t be ignored, for an event with a possibly big impact, especially if China stands on the side of the North Koreans in the conflict.



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