![Responding to Risk and
Uncertainty
● Expected utility can be used to make decisions
– ex. betting $10 on red in Roulette pays 1:1
● [($10)*(0.47)] + [(- $10)*(0.53)] = - $0.60 EV
● But the morally relevant aspects of situations of risk
and uncertainty go far beyond the impersonal sets of
consequences that expected utility operates on
● Proponents of nuclear energy emphasize how small
the risks are (noun), whereas opponents question the
very act of risking (verb) improbable but potentially
devastating accidents.](https://image.slidesharecdn.com/d903d71a-505e-4c72-aaa7-fc476349642b-150523230501-lva1-app6891/85/Risk-and-Uncertainty-8-320.jpg)
Risk and Uncertainty
- 1. Risk, Uncertainty, and the Precautionary Principle
- 2. Types of Probability ● a priori probability: known outcomes. – ex. rolling a dice, roulette wheel ● Statistical probability: Observed frequencies used to predict outcomes. – ex. odds of being killed on a single airline flight are 1/29 million ● Estimated probability (uncertainty) – Most common, demands judgment
- 3. Risk vs Uncertainty ● Risk: possible outcomes are known, as are their probabilities of occurring. Tangible and quantified. ● Uncertainty: outcomes and/or probabilities are either unknown or are estimated with low precision
- 4. Risk vs Uncertainty cont'd... ● Whether a decision is made under risk or uncertainty depends on your confidence in the reliability of the probability estimate. ● Real-life situations usually involve uncertainty without exact probabilities available. So strictly speaking, almost all decisions are made “under uncertainty.” ● There are methods for trying to turn uncertainty into risk and manage that risk.
- 5. Bayesian Probability ● Assigns a definite probability value to every statement about the world. – Almost nothing (apart from axioms) is fully believed. ● Unfeasible: Doesn't help us achieve a practical belief system because we have limited cognitive capacities. – In order to grasp complex situations (and make decisions), we need to reduce uncertainty to de facto belief rather than just probabilities.
- 6. Unknown Possibilities ● Sometimes we don't have a complete list of the alternatives or consequences that should be taken into account. – Creators of first atomic bomb worried that detonation might consume the atmosphere, kill all life on Earth. ● Still, no scientific calculation can remove apprehension about the possibility of something that nobody has been able to think of. ● But taking this logic to extreme paralyzes decision- making.
- 7. Unknown Possibilities cont'd... ● When to account for unknown possibilities, when to ignore them? ● Novelty: new and untested phenomena should be treated with special care. ● System limitations: cautiousness important when potential impacts may have unlimited or very long lasting consequences. ● Complex systems: ecosystems and the atmospheric system may be impossible to restore after a major disturbance.
- 8. Responding to Risk and Uncertainty ● Expected utility can be used to make decisions – ex. betting $10 on red in Roulette pays 1:1 ● [($10)*(0.47)] + [(- $10)*(0.53)] = - $0.60 EV ● But the morally relevant aspects of situations of risk and uncertainty go far beyond the impersonal sets of consequences that expected utility operates on ● Proponents of nuclear energy emphasize how small the risks are (noun), whereas opponents question the very act of risking (verb) improbable but potentially devastating accidents.
- 9. The Precautionary Principle ● Designed to ensure that the absence of scientific certainty isn't used as a reason for postponing actions that could protect people and environment when there's a credible threat of serious or irreversible harm. ● Maximin approach: choose the alternative that maximizes the minimum possible outcome. – Useful when the negative outcome is ruinous. But ignores the probability of the ruinous outcome as well as potentially forsaken benefits.
- 10. Principle of Bounded Subadditivity ● An event has more psychological impact when it turns impossibility into possibility, or possibility into certainty, than when it merely makes a possibility more likely. – ex. Greater impact of changing from 0.9 to 1 or from 0 to 0.1 than changing the probability from 0.3 to 0.4 ● Biopsy example – People value the elimination of a hazard more than a comparable reduction in its likelihood
- 12. The Cascade of Uncertainty
- 13. Approaches to acceptable-risk decisions ● Formal Analysis: cost-benefit analysis and decision analysis – Formalized prescriptive procedure – Complex problems decomposed into more manageable components to be studied ● Bootstrapping: use tried and tested methods – Historical experience and standards prescribe future action ● Professional Judgment: alternatives emerge from decisions of qualified experts – They may use formal analysis, but their own “best judgment” is final arbiter of whether or not to accept a given risk
- 14. Iterative Risk Management Process
- 15. Framing and Decision Processes ● “Predict-then-act” (aka “top-down”, science-first, scenario approach) – Impact uncertainty described independently of other parts of the decision problem – Probability estimates followed by impact projections ● “Assess-risk-of-policy” (aka “bottom-up”, context- first, vulnerability approach) – Starts with decision-making context – Uncertainty description customized to focus on key factors and goals as decided by policy-makers
- 16. 7 Criteria for evaluating approaches to acceptable-risk ● Comprehensive ● Logically sound ● Practical ● Open to evaluation ● Politically acceptable ● Compatible with institutions ● Conducive to learning