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The limits of catastrophe aversion
KTH, Superseded Departments, Infrastructure. (Philosophy)
2002 (English)In: Risk Analysis, ISSN 0272-4332, E-ISSN 1539-6924, Vol. 22, no 3, 527-538 p.Article in journal (Refereed) Published
Abstract [en]

We discuss the management of catastrophe-risks from a theoretical point of view. The concept of a catastrophe is informally and formally defined, and a number of desiderata for catastrophe-averse decision rules are introduced. However, the proposed desiderata turn out to be mutually inconsistent. As a consequence of this result, it is argued that the "rigid" form of catastrophe aversion articulated by, for example, the maximin rule, the maximum probable loss rule, (some versions of) the precautionary principle, and the rule proposed in Ekenberg et al. (1997, 2000) should be given up. An alternative form of "non-rigid" catastrophe aversion is considered.

Place, publisher, year, edition, pages
2002. Vol. 22, no 3, 527-538 p.
Keyword [en]
RISK
National Category
Philosophy
Identifiers
URN: urn:nbn:se:kth:diva-13604DOI: 10.1111/0272-4332.00036ISI: 000176547800016OAI: oai:DiVA.org:kth-13604DiVA: diva2:326163
Note
QC 20100622Available from: 2010-06-22 Created: 2010-06-22 Last updated: 2017-12-12Bibliographically approved
In thesis
1. Transformative Decision Rules: Foundations and Applications
Open this publication in new window or tab >>Transformative Decision Rules: Foundations and Applications
2003 (English)Doctoral thesis, comprehensive summary (Other scientific)
Abstract [en]

A transformative decision rule alters the representation of a decisionproblem, either by changing the sets of acts and states taken intoconsideration, or by modifying the probability or value assignments.Examples of decision rules belonging to this class are the principleof insufficient reason, Isaac Levi’s condition of E-admissibility, Luceand Raiffa’s merger of states-rule, and the de minimis principle. Inthis doctoral thesis transformative decision rules are analyzed froma foundational point of view, and applied to two decision theoreticalproblems: (i) How should a rational decision maker model a decisionproblem in a formal representation (‘problem specification’, ‘formaldescription’)? (ii) What role can transformative decision rules play inthe justification of the principle of maximizing expected utility?The thesis consists of a summary and seven papers. In Papers Iand II certain foundational issues concerning transformative decisionrules are investigated, and a number of formal properties of this classof rules are proved: convergence, iterativity, and permutability. InPaper III it is argued that there is in general no unique representationof a decision problem that is strictly better than all alternative representations.In Paper IV it is shown that the principle of maximizingexpected utility can be decomposed into a sequence of transformativedecision rules. A set of axioms is proposed that together justify theprinciple of maximizing expected utility. It is shown that the suggestedaxiomatization provides a resolution of Allais’ paradox that cannot beobtained by Savage-style, nor by von Neumann and Morgenstern-styleaxiomatizations. In Paper V the axiomatization from Paper IV is furtherelaborated, and compared to the axiomatizations proposed byvon Neumann and Morgenstern, and Savage. The main results in PaperVI are two impossibility theorems for catastrophe averse decisionrules, demonstrating that given a few reasonable desiderata for suchrules, there is no rule that can fulfill the proposed desiderata. In PaperVII transformative decision rules are applied to extreme risks, i.e.to a potential outcome of an act for which the probability is low, butwhose (negative) value is high.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2003. x, 72 p.
Series
Theses in philosophy from the Royal Institute of Technology, ISSN 1650-8831 ; 3
Keyword
transformative decision rule, problem specification, framing, expected utility, decision theory
National Category
Philosophy
Identifiers
urn:nbn:se:kth:diva-3512 (URN)91-7283-460-9 (ISBN)
Public defence
2003-05-16, 00:00
Note

QC 20100622

Available from: 2003-05-12 Created: 2003-05-12 Last updated: 2017-01-18Bibliographically approved

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