TY - CHAP
T1 - Analytical pork barreling?
AU - McAneney, Kevin John
PY - 2006
Y1 - 2006
N2 - Political decision-making often takes place in a soup of risk, uncertainty and conflicting expert opinion and inadequate information. This is not because of political failure but because of the inherent complexity of such decisions and the absence of complete information. In recent times, significant efforts have been devoted to quantifying the impact of natural hazards on communities. A preferred approach to risk-informed decision-making aims to exploit an ensemble of hazard-related exceedance probability (EP) curves. EP curves are commonly used by the insurance industry to price reinsurance contracts. But does the use of these tools improve our decision-making?
Catastrophe insurance is an example where there is a clear market need, a regulatory requirement and mostly, but not always, a sophisticated understanding of risk as a financial liability. These EP curves tell us, within the limits and constraints of data inputs, the probability of the modelled loss exceeding a given amount. Impediments to extending this tool beyond insurance are complicated by the extreme skewness of the EP curves and, by inference, the skewness of any cost-benefit analysis that depends upon it. Using examples from natural hazards, bio-security and terrorism, this paper will consider these issues as well as complications of risk perception and other decision biases and the role of market mechanisms.
AB - Political decision-making often takes place in a soup of risk, uncertainty and conflicting expert opinion and inadequate information. This is not because of political failure but because of the inherent complexity of such decisions and the absence of complete information. In recent times, significant efforts have been devoted to quantifying the impact of natural hazards on communities. A preferred approach to risk-informed decision-making aims to exploit an ensemble of hazard-related exceedance probability (EP) curves. EP curves are commonly used by the insurance industry to price reinsurance contracts. But does the use of these tools improve our decision-making?
Catastrophe insurance is an example where there is a clear market need, a regulatory requirement and mostly, but not always, a sophisticated understanding of risk as a financial liability. These EP curves tell us, within the limits and constraints of data inputs, the probability of the modelled loss exceeding a given amount. Impediments to extending this tool beyond insurance are complicated by the extreme skewness of the EP curves and, by inference, the skewness of any cost-benefit analysis that depends upon it. Using examples from natural hazards, bio-security and terrorism, this paper will consider these issues as well as complications of risk perception and other decision biases and the role of market mechanisms.
M3 - Other chapter contribution
SN - 0646462466
T3 - Abstracts (Geological Society of Australia)
SP - 72
EP - 73
BT - Australian Earth Sciences Convention
A2 - Debnam, David
PB - RESolutions Resource & Energy Services
CY - Osborne Park, WA
T2 - Australian Earth Sciences Convention
Y2 - 2 July 2006 through 6 July 2006
ER -