Risk Management and Climate Change

The selection of climate policies should be an exercise in risk management reflecting the many relevant sources of uncertainty. Studies of climate change and its impacts rarely yield consensus on the distribution of exposure, vulnerability, or possible outcomes. Hence policy analysis cannot effectively evaluate alternatives using standard approaches such as expected utility theory and benefit-cost analysis. This Perspective highlights the value of robust decision-making tools designed for situations, such as evaluating climate policies, where generally agreed-upon probability distributions are not available and stakeholders differ in their degree of risk tolerance. This broader risk management approach enables one to examine a range of possible outcomes and the uncertainty surrounding their likelihoods. Howard Kunreuther Operations and Information Management The Wharton School University of Pennsylvania 3730 Walnut Street, 500 JMHH Philadelphia, PA 19104-6366 and NBER [email protected] Geoffrey Heal Graduate School of Business 616 Uris Hall Columbia University New York, NY 10027-6902 and NBER [email protected] Myles Allen School of Geography and the Environment South Parks Road OX1 3QY [email protected] Ottmar Edenhofer Potsdam Institute for Climate P.O. 60 12 03 D-14412 Potsdam [email protected] Christopher B. Field Carnegie Institution for Science Department of Global Ecology 260 Panama Street Stanford, CA 94305 [email protected] Gary Yohe Department of Economics Wesleyan University PAC 328 Middleton, CT 06459 [email protected]