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Uncertainty and Decision in Climate Change Economics

  • Geoffrey Heal
  • Antony Millner

Uncertainty is intrinsic to climate change: we know that the climate is changing, but not precisely how fast or in what ways. Nor do we understand fully the social and economic consequences of these changes, or the options that will be available for reducing climate change. Furthermore the uncertainty about these issues is not readily quantified and expressed in probabilistic terms: we are facing deep uncertainty or ambiguity rather than risk in the classical sense, rendering the classical expected utility framework of limited value. We review the sources of uncertainty about all aspects of climate change and resolve these into various components, commenting on their relative importance. Then we review decision-making frameworks that are appropriate in the absence of quantitative probabilistic information, including non-probabilistic approaches and those based on multiple priors, and discuss their application in climate change economics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18929.

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Date of creation: Mar 2013
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Publication status: published as Reflections Uncertainty and Decision Making in Climate Change Economics Geoffrey Heal* and Antony Millner† Rev Environ Econ Policy (Winter 2014) 8 (1): 120-137. doi: 10.1093/reep/ret023
Handle: RePEc:nbr:nberwo:18929
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