Managing the Risk of Uncertain Threshold Responses: Comparison of Robust, Optimum, and Precautionary Approaches

Robert J. Lempert and Myles T. Collins

Risk Analysis, 2007, vol. 27, issue 4, 1009-1026

Abstract: Many commentators have suggested the need for new decision analysis approaches to better manage systems with deeply uncertain, poorly characterized risks. Most notably, policy challenges such as abrupt climate change involve potential nonlinear or threshold responses where both the triggering level and subsequent system response are poorly understood. This study uses a simple computer simulation model to compare several alternative frameworks for decision making under uncertainty—optimal expected utility, the precautionary principle, and three different approaches to robust decision making—for addressing the challenge of adding pollution to a lake without triggering unwanted and potentially irreversible eutrophication. The three robust decision approaches—trading some optimal performance for less sensitivity to assumptions, satisficing over a wide range of futures, and keeping options open—are found to identify similar strategies as the most robust choice. This study also suggests that these robust decision approaches offer a quantitative, decision analytic framework that captures the spirit of the precautionary principle while addressing some of its shortcomings. Finally, this study finds that robust strategies may be preferable to optimum strategies when the uncertainty is sufficiently deep and the set of alternative policy options is sufficiently rich.

Date: 2007
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https://doi.org/10.1111/j.1539-6924.2007.00940.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:riskan:v:27:y:2007:i:4:p:1009-1026

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