This Essay explores extreme circumstances in which, because of available warning signs, decision makers know (or should know) that a high-impact negative event is about to happen or is already happening (“red-flags situations”). Several legal principles, such as those of the jurisprudence of omissions and inaction and the business judgment rule, shield decision makers from liability for failures to respond to red-flags situations. The Essay shows that, because of a wide range of systemic judgment errors, decision makers often fail to address red-flags situations. It studies the pathology of such failures and the soundness of the present legal approach to red-flags situations. The Essay argues that by revising legal standards to reflect realistic premises concerning judgment under uncertainty, society can attain great benefits in the form of reduced failure costs.