Implications for Decision Making and Environmental Policy
New Horizons in Environmental Economics series
Chapter 4: Uncertainty and Decision Making
4.1 INTRODUCTION The previous chapters have outlined the nature of the uncertainty problem and put forward the argument that many environmental problems are conditioned by hard uncertainty. The realization, however, that there are a number of modalities of uncertainty and that in the context of environmental decision making, most decisions are characterized by hard uncertainty or ignorance rather than soft uncertainty, poses a number of problems both in terms of the interpretation and the use of traditional models. In particular, recognizing the presence of hard uncertainty in many environmental decisions requires a different approach to how models of decision making are interpreted and evaluated. This issue is dealt with in Section 4.2. It is argued that in the presence of hard uncertainty the underlying rationality of any decision is necessarily bounded. As such, only the rationality of the decision-making process rather than the decision itself, can be evaluated. Although the majority of traditional decision-making models rely on the use of probability (either objective or subjective)1 as a measure of uncertainty, recognizing the different modes of uncertainty implies that the use of one all-encompassing measure will be limited. Although the use of probability may be valid in cases of soft uncertainty or risk, it cannot be applied as a measure of hard uncertainty. The second section therefore aims to further the critique of using a probability framework to deal explicitly with hard uncertainty and to argue that objective and subjective probability can often not be applied to environmental decisions. The...
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