Stepping Out of Your Own Shadow: A Didactic Example of How Facing Uncertainty Can Improve Decision‐Making

Stepping Out of Your Own Shadow: A Didactic Example of How Facing Uncertainty Can Improve... Advocates of quantitative uncertainty analysis (QUA) have invested substantial effort in explaining why uncertainty is a crucial aspect of risk and yet have devoted much less effort to explaining how QUA can improve the risk manager's performance. This paper develops a teaching example, using a personal decision problem with subtle parallels to societal risk management, to show how choices made with increasing appreciation of uncertainty are superior ones. In the hypothetical, five analysts explain the same uncertain prospect (whether to invest in a volatile stock issue), with increasing attention to the nuances of uncertainty. The path through these different perspectives on the decision demonstrates four general points applicable to environmental risk management: (1) Various point estimates with equal claim to being “best estimates” can differ markedly from each other and lead to diametrically different choices; (2) “conservatism” has both relative and absolute meanings, with different implications for decision‐making; (3) both inattention to and fixation on “outliers” in the uncertainty distribution can lead the manager astray; and (4) the best QUA is one that helps discriminate among real options, that points to optimum pathways toward new information, and that spurs on the iterative search for new decision options that may outperform any of the initial ones offered. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Risk Analysis Wiley

Stepping Out of Your Own Shadow: A Didactic Example of How Facing Uncertainty Can Improve Decision‐Making

Risk Analysis, Volume 14 (5) – Oct 1, 1994

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Publisher
Wiley
Copyright
Copyright © 1994 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0272-4332
eISSN
1539-6924
D.O.I.
10.1111/j.1539-6924.1994.tb00285.x
Publisher site
See Article on Publisher Site

Abstract

Advocates of quantitative uncertainty analysis (QUA) have invested substantial effort in explaining why uncertainty is a crucial aspect of risk and yet have devoted much less effort to explaining how QUA can improve the risk manager's performance. This paper develops a teaching example, using a personal decision problem with subtle parallels to societal risk management, to show how choices made with increasing appreciation of uncertainty are superior ones. In the hypothetical, five analysts explain the same uncertain prospect (whether to invest in a volatile stock issue), with increasing attention to the nuances of uncertainty. The path through these different perspectives on the decision demonstrates four general points applicable to environmental risk management: (1) Various point estimates with equal claim to being “best estimates” can differ markedly from each other and lead to diametrically different choices; (2) “conservatism” has both relative and absolute meanings, with different implications for decision‐making; (3) both inattention to and fixation on “outliers” in the uncertainty distribution can lead the manager astray; and (4) the best QUA is one that helps discriminate among real options, that points to optimum pathways toward new information, and that spurs on the iterative search for new decision options that may outperform any of the initial ones offered.

Journal

Risk AnalysisWiley

Published: Oct 1, 1994

References

  • A Distributional Approach to Characterizing Low‐Dose Cancer Risk
    Evans, Evans; Graham, Graham; Gray, Gray; Sielken, Sielken

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