Multiple decision-making criteria in the transport and burial of hazardous and radioactive wastes
Paleologos, Evan K.
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We evaluate the application of various statistical measures for the identification of optimal financial strategies in environmental projects that may be burdened by the consequences of low-probability, high-cost events. Our particular application lies in the area of transport and burial of hazardous and radioactive wastes but our approach applies to a wide range of problems where the utility structure is of the form of gains minus losses, and where limited and/or catastrophic failures may be encountered. We utilize four statistical measures, the expected value, variance, volatility and cumulative probability to compare the outcomes of limited and catastrophic spills. The maximum expected monetary value which is frequently used in the environmental and gas and oil industries as the sole criterion for the selection of optimum actions is seen to lead to erroneous decisions and fails to unambiguously differentiate the economic consequences of limited and catastrophic failures in a project. We demonstrate that unwarranted inclusion of catastrophic scenarios into the decision-making analysis can substantially alter the perspective of a project and guide a corporation away from an investment that could be profitable even under a limited liability case. We conclude by providing a decision-making procedure for cases where the probabilities associated with future events and/or the monetary returns are characterized not by sharp estimates but rather are represented by a range of values.