Expected utility theory and the tyranny of catastrophic risks


Buchholz, Wolfgang ; Schymura, Michael


[img]
Preview
PDF
dp10059.pdf - Published

Download (331kB)

URL: http://ub-madoc.bib.uni-mannheim.de/3012
URN: urn:nbn:de:bsz:180-madoc-30129
Document Type: Working paper
Year of publication: 2010
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: Q54 ,
Subject headings (SWD): Klimaschutz , Kosten-Nutzen-Analyse , Erwarteter Nutzen , Naturkatastrophe , Risiko , Wahrscheinlichkeitsrechnung , Utilitarismus , Theorie
Keywords (English): Utilitarianism , expected utility theory, catastrophic risks
Abstract: Expected Utility theory is not only applied to individual choices but also to ethical decisions, e.g. in cost-benefit analysis of climate change policy measures that affect future generations. 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 may be dominated by the catastrophic event even if its probability is negligibly small. With low degrees of risk aversion, however the catastrophic risk eventually has no impact at all when its probability goes to zero which is ethically not acceptable as well.
Additional information:

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




+ Citation Example and Export

Buchholz, Wolfgang ; Schymura, Michael (2010) Expected utility theory and the tyranny of catastrophic risks. Open Access [Working paper]
[img]
Preview


+ Search Authors in

+ Download Statistics

Downloads per month over past year

View more statistics



You have found an error? Please let us know about your desired correction here: E-Mail


Actions (login required)

Show item Show item