Topic 5 - Irreversibility, risk and uncertainty

Question 1

Define: risk

Answer 1

Where all possible consequences of a decision can be completely numerated and probabilities assigned to each possible ‘state of the world’, ‘state of nature’, ‘state’

Question 2

Define: uncertainty

Answer 2

Where all possible consequences of a decision

can be enumerated, but probabilities cannot be assigned

Question 3

Define: radical uncertainty

Answer 3

Where all possible consequences of a

decision cannot be enumerated

Question 4

Outline maximin

Answer 4

Select the strategy with the least-bad worst outcome

Question 5

Outline maximax

Answer 5

Select the best of the best outcomes

Question 6

Outline minimax regret

Answer 6

Form the regret matrix with
entries that are the difference between the
actual pay-off and what it would have been
under the best strategy for the given state of
nature

Question 7

Outline the precautionary principle

Answer 7

Like the SMS, the precautionary principle can be taken as saying that there is a presumption against going ahead with projects that have serious irreversible
environmental consequences, unless it can be shown that not to go ahead would involve unacceptable costs.

Question 8

Outline Safe Minimum Standards

Answer 8

Safe minimum standard (SMS) approach is a collective choice process that prescribes protecting a minimum level of a renewable natural resource unless the social costs of doing so are somehow excessive or intolerable.