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A Review of the Implications of Prospect Theory for Natural Hazards and Disaster Planning
Asgary, A. & Levy, J.
Abstract
Traditional approaches for environmental hazards and disaster planning under conditions
of risk and uncertainty are discussed, including normative expected utility theory, “satisificing”,
and robustness analyses. Prospect theory, a descriptive technique with roots in psychology, has
emerged as an alternative theory of decision making under risk and uncertainty to utility theory and
other classic approaches. Over the past quarter century Prospect theory has been increasingly used
in various disciplines such as political science, public health, engineering, economics, insurance, and
business. This paper aims to introduce and discuss some of the potential implications of prospect
theory for environmental hazards and disaster planning theory and practice. It is argued that prospect
theory can significantly enhance environmental hazards and disaster planning theory and practice,
particularly for decision making under uncertainty. Several practical examples are provided to
illustrate the strengths of this versatile method.
Keywords
Prospect theory, Environmental hazards, Disaster planning, Planning theory, Decision making, Risk,Uncertainty
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