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Frontiers of Engineering Reports on Leading-Edge Engineering from the 2015 Symposium (2016) / Chapter Skim
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Moving from Risk Assessment to Risk Reduction: An Economic Perspective on Decision Making in Natural Disasters--Jeffrey Czajkowski
Pages 129-140

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From page 129...
... It is assumed either that users of the information will fully understand the scientific data and incorporate that understanding in rational decisions based on a systematic analysis of tradeoffs between benefits and costs, or that losses will be better predicted and managed based on the enhanced scientific aspects of a catastrophe model. Yet, although hazard assessments have improved, many forms of losses from natural disasters have increased over time, associated with innumerable instances of inadequate investments in loss reduction measures and poor decision making before and after events.
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From page 130...
... . For example, the 72-hour track forecast error improved from nearly 450 nautical miles on average in 1970 down to less than 100 nautical miles in 2014, as shown FIGURE 1  National Hurricane Center annual average official track errors as a function of forecast lead time for Atlantic Basin tropical storms and hurricanes, 1970–2014, with least squares trend lines superimposed.
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From page 131...
... This usage has in turn led to the further implementation of natural hazard risk transfer mechanisms such as reinsurance and capital markets (Grossi and Kunreuther 2005) , allowing for the relatively uneventful absorption of natural hazard economic losses by the insurance industry in recent years.
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From page 132...
... DEFINING THE NATURAL HAZARD FORECAST RISK SPACE Natural hazard risk is defined as the probability of a natural hazard event occurrence and its expected impact (Kunreuther and Useem 2010)
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From page 133...
... . There is a clear need to better understand the impact side of the natural hazard risk equation -- including perceptions of expected impact -- if overall risk reduction is the goal (Kunreuther and Useem 2010)
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From page 134...
... 134 FRONTIERS OF ENGINEERING FIGURE 4  National Weather Service tornado impact–based warning example for a catastrophic tornado warning. SOURCE: NWS Impact Based Warnings, http://www.weather.
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From page 135...
... . NATURAL HAZARD FORECAST RISK IN TIME Pre- and Postevent Planning Forecasts of natural hazard risks are directly tied to an event, whereas the extent of overall impacts is a function of risk over time in the affected areas.
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From page 136...
... Deliberative Decision Making From a rational economic perspective in the natural hazard risk space, individual decisions at a point in time are based on expected utility theory. 5 According to this theory, an individual confronted with the need for a decision with uncertain outcomes will decide based on the outcome with the greatest expected utility.
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From page 137...
... highlights the difference between intuitive and deliberative thinking, documenting extensive research on intuitive biases that operate in lieu of ideal deliberative decision making and result in suboptimal choices for low-probability/high-consequence events such as natural disasters. For example, the availability bias estimates the likelihood of disaster occurrence based on the saliency of the event as opposed to objective hazard probabilities.
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From page 138...
... This paper has provided a definition and context for decision making in the natural disaster risk space where behavioral biases play a significant role. Efforts to reduce natural disaster risk will have to incorporate appropriate risk management strategies based on this behavior-based knowledge.
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From page 139...
... Upper Saddle River, NJ: Prentice Hall. Lin N, Emanuel K, Oppenheimer M, Vanmarcke E
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From page 140...
... Global Assessment Report on Disaster Risk Reduction. Geneva.
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Key Terms

  • hazard risk
  • risk reduction
  • disaster risk
  • natural disaster
  • behavioral biases

  • natural disasters
  • risk space
  • expected utility
  • extreme weather
  • forecast risk

  • hazard forecast
  • risk perception
  • risk communication
  • natural hazards
  • hazard event

  • hazard risks
  • national weather
  • catastrophe models
  • economic losses
  • utility theory

  • weather service
  • american meteorological
  • upper saddle
  • saddle river
  • annual average

  • prentice hall
  • tropical cyclones
  • event risk
  • appropriate risk
  • risk context


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