Environmental Engineering Reference
In-Depth Information
Risk Aversion
The level of risk and uncertainty any particular player is willing to accept will influ-
ence how he or she responds to scenarios with imperfect or incomplete information
(see chap. 13, this volume). Risk is the probability of undesirable outcomes, while un-
certainty refers to a lack of probabilistic estimations of outcome likelihoods (e.g.,
Faucheaux and Froger 1995). Ignorance is often used to describe the condition in
which the full set of possible outcomes is not known. For the purposes of risk aversion,
when uncertainty and ignorance can encompass undesirable outcomes, an increase
in any of these is undesirable for a risk-averse party.
The more concerned a party is about risk, the more likely he or she will avoid
choices that have possible undesirable outcomes, even if the probabilistic weighted
value is better than the alternatives. Consequently, if restoration stakeholders are
highly risk averse, and they see some chance of an undesirable outcome from restora-
tion activities and have means to move the process toward a set of outcomes they see
to involve less risk, it will be particularly important to address their concerns. For ex-
ample, a highly risk-averse rancher might consider restoration efforts that have an ex-
tremely small probability of increased predator traffic on his property as unacceptable.
In the Sacramento River Conservation Area, one group in opposition to some restora-
tion activities went so far as to claim on its website that restoration can increase flood-
ing resulting in human fatalities.
Returning to figure 17.2, the stakeholder, if faced with a choice by the restoration
group to pursue Plan B, has a probabilistically weighted expected loss of 5 percent
with support and 10 percent with opposition. A relatively risk-neutral neighbor would
choose to support Plan B. However, a risk-averse neighbor will see the potential 20
percent loss as too much and would prefer to contain losses to a maximum of 10 per-
cent with opposition. This example shows the importance of recognizing and ad-
dressing expected worst-case scenarios, even if they have a low probability.
Systematically reducing ignorance, uncertainty, and perceived risk can be an im-
portant step for avoiding decision making that counters restoration efforts. Adaptive
management processes can be designed to focus on these issues, particularly those
driving decision making. Identifying important areas of imperfect information can
help to prioritize research. Promoting dialogue among stakeholders with different pri-
orities, such as coordinated research management and planning, can help to reduce
situations of incomplete information. Risk and liability sharing mechanisms, such as
agreements to help bear costs or burden, can potentially reduce perceived risk to a
point of achieving cooperation.
Cooperative Solutions
Noncooperative game theory is considered by game theorists to be the appropriate
framework for analysis because cooperative outcomes can be achieved within a non-
cooperative framework if the necessary communication and binding contract options
are available (Myerson 1997). In fact, it is necessary to recognize that noncooperative
outcomes are possible and that parties can walk away from the table, to understand
