Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses

Marcello Basili, Alain Chateauneuf and Fulvio Fontini

Ecological Economics, 2008, vol. 67, issue 3, 485-491

Abstract: The paper investigates a decision-making process involving both risk and ambiguity. Differently from existing papers [Basili, M., Chateauneuf, A., Fontini, F., 2005. Choices under ambiguity with familiar and unfamiliar outcomes, Theory and Decision 58, 195-207; Chichilnisky, G., 2000. Axiomatic approach to choice under uncertainty with catastrophic risks. Resources and Energy Economics 22, 221-231; Chichilnisky, G., 2002. In: El-Shaarawi, A.,H., Piegorsch, W.W. (Eds.), Catastropic Risks. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd, Chichester, UK, pp. 274-279], we assume that, in a Choquet Expected Utility framework, the decision-maker is pessimistic with respect to unfamiliar (catastrophic) losses, optimistic with respect to unfamiliar (windfall) gains and ambiguity-neutral with respect to the familiar world. A representation of the decision-maker's choice is obtained that mimics the Restricted Bayes-Hurwicz Criterion. In this way a characterization of the Precautionary Principle is introduced for decision-making processes under ambiguity with catastrophic losses and/or windfall gains.

Keywords: Ambiguity; Risk; Choquet; Integral; Restricted; Bayes-Hurwicz; Criterion; Precautionary; Principle (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (13)

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Working Paper: Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catatrophic losses (2008)
Working Paper: Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catatrophic losses (2008)
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