A Review of the Implications of Prospect Theory for Natural Hazards and Disaster Planning

Traditional approaches for environmental hazards and disaster planning under condi- tions 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 pros- pect theory can significantly enhance environmental hazards and disaster planning theory and prac- tice, particularly for decision making under uncertainty. Several practical examples are provided to illustrate the strengths of this versatile method.