Conceptualizing preferences and valuation under knightian uncertainty

Abstract: Climate change is one of the most important global challenges and its ramifications have been felt more intensely than ever in recent years. To name just a few impacts, global temperature rise is already leading to changes in weather patterns and more extreme weather phenomenons like floods, drought, and storms, polar ice melt and rising sea levels, and stronger wildfires. However, making a scientific prediction about the world in which climate change will lead us is difficult, because the magnitude of climate change and its ramifications are uncertain. While models are able to tell us, what effects come with a certain temperature rise, the Earth's climate system is too complex and the time horizon too long to give a sensible prediction about the probability with which each effect will occur. Still, adaption options must be chosen today in order to be effective, and an economic valuation is the basis of making a rational choice.

With this thesis, I contribute to the climate change adaption options by providing a conceptualization of the economic valuation and of the representation of preferences of decision makers under Knightian uncertainty. A situation is characterized by ``Knightian uncertainty'' if a decision maker knows the potential future states of the world, but not the probabilities at which they turn out. Hence, it is a deeper form of uncertainty than a situation which is characterized by ``risk'' in which probabilities are known.

In the first paper ``Preference Functions for Knightian uncertainty'', several representation functions for decisions under Knightian uncertainty (in the sense of Baumgärtner and Engler, 2018) are proposed. These functions capture the uncertainty of the payoff distribution that a choice option entails over the possible states that might occur by employing established economic and statistical measures for inequality and distribution. The paper defines desirable properties of these functions and shows, which preference function fulfills which properties. One important result is that the preference function that is derived from the Atkinson index captures many desired properties. The preference functions can be used to study questions of efficient allocation under Knightian uncertainty.

The second paper ``Welfare measurement under Knightian uncertainty'' analyzes concepts for the economic valuation of welfare changes under Knightian uncertainty and illustrates these concepts by deriving analytic solutions for the preference functions developed in ``Preference Functions for Knightian Uncertainty''. The resulting measures are scalar measures for the ex-ante value of an uncertain payoff. They are the Knightian analog to established valuation measures for situations under risk. Hence, the paper shows that well-founded and applicable welfare measurement is possible under Knightian uncertainty. The resulting measures are relevant for cost-benefit analysis of projects like climate change adaption options where benefits are dependent on the solution of a situation that is characterized by Knightian uncertainty.

The third paper ``Measuring individual attitudes towards Knightian uncertainty: New evidence from a representative artefactual field experiment'' describes the experimental field study in the Krummhörn region, which is a representative region of the German North Sea coastal area. Therefore, its situation is generic with regard to the challenges of climate change in rural coastal areas. For the experiment a novel uncertainty preference survey module was developed. The paper finds strong and consistent patterns of the effects of risk preferences, education, age, and happiness on uncertainty preferences of participants. It confirms previous research which finds that subjects predominantly show decreasing relative uncertainty aversion. In conclusion, this paper provides an in-depth investigation of uncertainty preferences of a population which lives in an area that is very prone to impacts of climate change. It is therefore a basis for efficient communication of adaption options to people affected by them.

The fourth paper ``Attribution of collective causal responsibility to individual actors in stochastic systems'' takes another perspective on the question of climate change. It proposes an axiomatic characterization of an attribution of collective causal responsibility to individual actors in stochastic nonlinear systems, i.e., it answers the question ``To what extent is an outcome caused by an individual actor's action, rather than by some other actor's action or by given circumstances or stochastic influences?'' The paper proofs that a unique measure is implied by four elementary axioms on the attribution of collective responsibility to individuals. Hence, it can be applied to determine which actor (e.g., country, state, or individual) is responsible to which extent for the change in the Earth's climate, which is important for implementing efficient incentive schemes and liability.

In summary, this thesis provides a novel approach to the question, how preferences and valuation can be conceptualized under deep uncertainty, which is entailed by climate change. It shows that theoretically well-founded and practically applicable preference representation and welfare measurement is possible even if a rigorous interpretation of Knightian uncertainty is assumed. The results of this thesis outline a new approach to questions of efficient allocation under Knightian uncertainty. Consequently, these methods can be applied in real life to decision making in environmental settings, such as long-term investment in climate change adaption options. Additionally, the thesis describes a new method to empirically investigate uncertainty preferences and shows that the method is able to determine uncertainty preferences for the population of a specific study region and confirm previous findings about uncertainty preferences

Angaben zum Objekt

• Standort: Deutsche Nationalbibliothek Frankfurt am Main
• Umfang: Online-Ressource
• Sprache: Englisch
• Anmerkungen: Universität Freiburg, Dissertation, 2023

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Schlagwort: Entscheidung bei Unsicherheit ; Unsicherheit ; Präferenz ; Klimaänderung

Beteiligte, Orts- und Zeitangaben

• Ereignis: Veröffentlichung
• (wo): Freiburg
• (wer): Universität
• (wann): 2024
• Urheber: Mittelstaedt, Christian
• Beteiligte Personen und Organisationen: Baumgärtner, Stefan ; Hanewinkel, Marc ; Albert-Ludwigs-Universität Freiburg. Professur für Umweltökonomie und Ressourcenmanagement ; Albert-Ludwigs-Universität Freiburg. Fakultät für Umwelt und Natürliche Ressourcen

Weitere Informationen

• DOI: 10.6094/UNIFR/246664
• URN: urn:nbn:de:bsz:25-freidok-2466641
• Rechteinformation: Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
• Letzte Aktualisierung: 14.08.2025, 10:55 MESZ