Risk Assessment: Understanding Uncertainty in Environmental Projects

This lecture discusses the concepts of risk and uncertainty in the context of environmental projects. It begins by defining risk as a combination of hazard, vulnerability, and exposure, particularly in relation to climate change impacts such as rising sea levels. The instructor explains how these components affect different regions differently, using examples like Switzerland and Bangladesh to illustrate varying levels of exposure and vulnerability. The lecture emphasizes the importance of cost-benefit analysis in public decision-making, particularly when evaluating environmental policies. The instructor introduces the concept of certainty equivalent, explaining how risk-averse individuals prefer guaranteed outcomes over uncertain ones, even if the expected value is higher. The discussion includes the role of probabilities in assessing risks and how ignorance can complicate decision-making. The lecture concludes with an exploration of how to handle uncertainty in project evaluations, highlighting the need for tools to assess financial feasibility in environmental protection initiatives.