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Risk-Benefit Analysis Special Lectures - University of Kuwait

Join Richard Wilson, Mallinckrodt Professor of Physics at Harvard University, for a series of special lectures on risk and benefit analysis. Topics include uncertainty and perception, risk changes with time, and public misconceptions. Don't miss this opportunity to gain insights on decision making and the importance of considering risk and benefit.

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Risk-Benefit Analysis Special Lectures - University of Kuwait

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  1. RISK BENEFIT ANALYSISSpecial LecturesUniversity of KuwaitRichard WilsonMallinckrodt Professor of PhysicsHarvard UniversityJanuary 13th, 14th and 15th 2002

  2. January 14th 9 am to 2 pmUncertainty and PerceptionRisk implies an UncertaintyAn uncertain outcome implies a riskPublic Perception is all important in influencing decisions.A Decision Maker ignores it at his peril

  3. Risk Changes with TimeSo does Uncertainty

  4. Two main types of UncertaintySystematic Uncertainty or Uncertainty of fact.(Does it, or will it, ever happen to anyone ?)Stochastic (will it happen to me?)Society is primarily concerned with only the firstIndividuals also are concerned about the second

  5. Kahneman got the 2002 Nobel prize in Economics. Why?

  6. Kahneman and Tversky • Problem 1 [N = 152]: • Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequences of the programs are as follows: • If Program A is adopted, 200 people will be saved. • If Program B is adopted, there is 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved. • Which of the two programs would you favor?

  7. Problem 2 [N = 155] • If Program C is adopted 400 people will die. • If Program D is adopted there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die. • Which of the two programs would you favor?

  8. Problem 3 [N = 150] • Imagine that you face the following pair of concurrent decisions. First examine both decisions, then indicate the options you prefer. • Decision (i) Choose between: • A. a sure gain of $240 • B. 25% chance to gain $1000, and • 75% chance to gain nothing • Decision (ii) Choose between: • C. a sure loss of $750 • D. 75% chance to lose $1000, and • 25% chance to lose nothing

  9. Problem 4 [N = 86] • Choose between: • A & D. 25% chance to win $240, and • 75% chance to lose $760 • B & C. 25% chance to win $250, and • 75% chance to lose $750

  10. Problem 5 [N = 77] • Which of the following options do you prefer? • A. a sure win of $30 • B. 80% chance to win $45

  11. Problem 6 [N = 85] • Consider the following two-stage game. In the first stage, there is a 75% chance to end the game without winning anything, and a 25% chance to move into the second stage. If you reach the second stage you have a choice between: • C. a sure win of $30 • D. 80% chance to win $45 • Your choice must be made before the game starts, i.e. before the outcome of the first stage is known. Please indicate the option you prefer.

  12. Problem 7 [N = 81] • Which of the following options do you prefer? • E. 25% chance to win $30 • F. 20% chance to win $45

  13. Problem 8 [N = 183] • Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theater you discover that you have lost a $10 bill. • Would you still pay $10 for a ticket for the play? • Yes • No

  14. Problem 9 [N = 200] • Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. • Would you pay $10 for another ticket? • Yes • No

  15. Problem 10 • Imagine that you are about to purchase a jacket for ($125) [$15], and a calculator for ($15) [$125]. The calculator salesman informs you that the calculator you wish to buy is on sale for ($10) [$120] at the other branch of the store located 20 minutes drive away. • Would you make the trip to the other store?

  16. Attributes of a Riskthat influence perception • PRIMARYRepresentativeness • Anchoring • Availability • Voluntariness • Trust • SECONDARY • Availability of Alternatives • Necessity • Immediacy • Dread • Rare yet Catastrophic • Knowledge about Risk • Familiarity • Distribution of Risk • Potential for misuse or Abuse

  17. Risk Comparisons

  18. We chlorinate drinking water for sanitation.Chlorine + organic matter produces chloroform - a carcinogen in animalsThe risk is more than one in a millionShould we continue?

  19. Public misconceptions • Environmentally caused means caused by industry • When 5 people on a street get cancer, it is not due to chance • Radiation at any level is uniquely dangerous

  20. Example of:Global Warming Lecture 2 at Kuwait University January 15th 2002

  21. How do we encourage people to use less carbon?Carbon charge or tax?

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