Uncertainty and decision making in climate change economics

Review of Environmental Economics and Policy Link to journal

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 in probabilistic terms: we are facing deep uncertainty rather than known risks. We argue that this may render the classical expected utility framework for decision making under uncertainty of limited value for informing climate policy. We review the sources of uncertainty about all aspects of climate change, separate these into scientific and socioeconomic components, and examine their relative importance. Then we review decision-making frameworks that may be more appropriate in the absence of unique probabilities including nonprobabilistic approaches and those based on multiple priors, and we discuss their application in the context of climate change economics.

Geoffrey Heal and Antony Millner