Risky Decisions Over Troubled Waters: Public Works Directors’ Sea Level Rise Risk Attitudes

Abstract

Local governments will be forced to navigate uncertain sea level rise projections as they fight to protect their key infrastructure systems from rising seas. As leaders in their departments, public works directors must make key project prioritization decisions as seas rise. So, how do they navigate the risk and uncertainty of sea level rise? This study tests if public works directors’ prioritization decisions align with the predictions of cumulative prospect theory, by inviting public works directors working in local governments on the United States coast to participate in a decision-making experiment. Results indicate that public works directors’ risk preferences differ from cumulative prospect theory because directors tend to be decreasingly sensitive to increases in assets’ criticality and probability of failure. As a result, public works directors are characterized as risk averse when prioritizing projects.

Keywords

sea level rise infrastructure capital budgeting prospect theory risk uncertainty

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