Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catatrophic losses

Marcello Basili (1) , Alain Chateauneuf (2) , Fulvio Fontini (3)

1 DEPFID
2 CES - Centre d'économie de la Sorbonne
3 Department of Economics

The paper investigates a decision-making process involving both risk and ambiguity. Differently from existing papers [Basili, M., Chateauneuf, A., Fontini, F., 2005. Choices under ambiguity with familiar and unfamiliar outcomes, Theory and Decision 58, 195-207; Chichilnisky, G., 2000. Axiomatic approach to choice under uncertainty with catastrophic risks. Resources and Energy Economics 22, 221-231; Chichilnisky, G., 2002. In: El-Shaarawi, A.,H., Piegorsch, W.W. (Eds.), Catastropic Risks. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd, Chichester, UK, pp. 274-279], we assume that, in a Choquet Expected Utility framework, the decision-maker is pessimistic with respect to unfamiliar (catastrophic) losses, optimistic with respect to unfamiliar (windfall) gains and ambiguity-neutral with respect to the familiar world. A representation of the decision-maker's choice is obtained that mimics the Restricted Bayes-Hurwicz Criterion. In this way a characterization of the Precautionary Principle is introduced for decision-making processes under ambiguity with catastrophic losses and/or windfall gains.

Mots clés: Ambiguity; Risk; Choquet Integral; Restricted Bayes-Hurwicz Criterion; Precautionary Principle

Domaines: Economies et finances

Marcello Basili, Alain Chateauneuf, Fulvio Fontini. Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catatrophic losses. Ecological Economics, 2008, 67 (3), pp.485-491. ⟨10.1016/j.ecolecon.2007.12.030⟩. ⟨hal-00273211⟩