Economic Decision Guide Software (EDGe$) with Loss Amplification and Risk Aversion: Wildfire Urban Interface (WUI) Case Studies

Abstract

This report demonstrates by examples and case study as a proof of concept the use of loss amplification and risk aversion in benefit cost analysis (BCA) for community resilience planning. The report uses the NIST Economic Decision Guide Software (EDGe$) Online Tool, which assesses the economic feasibility of community resilience alternatives. Loss amplification arises from a catastrophe modeling method used to represent the increased costs associated with repair activity during a demand surge after a large catastrophe. Risk aversion is a measure of a community’s (or other entity’s) preference to avoid uncertainty. Risk aversion parameters can be used to compute certainty equivalent payoffs from uncertain payoffs and specific levels of risk aversion. A fictitious case study of wildfire disaster planning of a wildland-urban interface (WUI) is employed to demonstrate these two model enhancements (i.e., loss amplification and risk aversion) and their effects on the economic indicator outputs from EDGe$. The presented case study evaluates a binary development choice related to the resilience of a large presidential library from the perspective of two neighboring communities.

Christina Gore

Research Economist

I am a research economist in the Applied Economics Office at NIST, working on environmental, behavioral, and community resilience economics.