The Effect of Neglecting Correlations When Propagating Uncertainty and Estimating the Population Distribution of Risk

Andrew E. Smith, P. Barry Ryan and John S. Evans

Risk Analysis, 1992, vol. 12, issue 4, 467-474

Abstract: Interest in examining both the uncertainty and variability in environmental health risk assessments has led to increased use of methods for propagating uncertainty. While a variety of approaches have been described, the advent of both powerful personal computers and commercially available simulation software have led to increased use of Monte Carlo simulation. Although most analysts and regulators are encouraged by these developments, some are concerned that Monte Carlo analysis is being applied uncritically. The validity of any analysis is contingent on the validity of the inputs to the analysis. In the propagation of uncertainty or variability, it is essential that the statistical distribution of input variables are properly specified. Furthermore, any dependencies among the input variables must be considered in the analysis. In light of the potential difficulty in specifying dependencies among input variables, it is useful to consider whether there exist rules of thumb as to when correlations can be safely ignored (i.e., when little overall precision is gained by an additional effort to improve upon an estimation of correlation). We make use of well‐known error propagation formulas to develop expressions intended to aid the analyst in situations wherein normally and lognormally distributed variables are linearly correlated.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:wly:riskan:v:12:y:1992:i:4:p:467-474

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