 Expected utility theory and the tyranny of catastrophic risksWolfgang Buchholz () and Michael Schymura Ecological Economics, 2012, vol. 77, issue C, 234-239 Abstract: Expected Utility theory is not only applied to individual choices but also to social decisions, e.g. in cost–benefit analysis of climate change policy measures that affect future generations and hence incorporate an ethical dimension. In this context the crucial question arises whether EU theory is able to deal with “catastrophic risks”, i.e. risks of high, but very unlikely losses, in an ethically appealing way. In this paper we show that this is not the case. Rather, if in the framework of EU theory a plausible level of risk aversion is assumed, a “tyranny of catastrophic risk” (TCR) emerges, i.e. project evaluation is dominated by the catastrophic event. Or, contrary to that, with low degrees of risk aversion, the catastrophic risk eventually has no impact at all (“negligence of catastrophic risk” (NCR)) which is ethically not acceptable as well. Keywords: Expected Utility Theory; Catastrophic risks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:77:y:2012:i:c:p:234-239 DOI: 10.1016/j.ecolecon.2012.03.007 Access Statistics for this article Ecological Economics is currently edited by C. J. Cleveland More articles in Ecological Economics from Elsevier |
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