Buchholz, Wolfgang and Schymura, Michael (2012) Expected utility theory and the tyranny of catastrophic risks. ECOLOGICAL ECONOMICS, 77. pp. 234-239. ISSN 0921-8009,
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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. (C) 2012 Elsevier B.V. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | CLIMATE-CHANGE; ECONOMICS; UNCERTAINTY; SUSTAINABILITY; BEHAVIOR; AVERSION; Expected Utility Theory; Catastrophic risks |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Entpflichtete oder im Ruhestand befindliche Professoren > Lehrstuhl für Finanzwissenschaft, insbesondere Umweltökonomie (Prof. Dr. Wolfgang Buchholz) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 14 May 2020 11:30 |
| Last Modified: | 14 May 2020 11:30 |
| URI: | https://pred.uni-regensburg.de/id/eprint/18779 |
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