Question

A potentially huge hurricane is forming in the Caribbean, and there is some chance that it might make a direct hit on Hilton Head Island, South Carolina, where you are in charge of emergency preparedness. You have made plans for evacuating everyone from the island, but such an evacuation is obviously costly and upsetting for all involved, so the decision to evacuate shouldn’t be made lightly. Discuss how you would make such a decision. Is EMV a relevant concept in this situation? How would you evaluate the consequences of uncertain outcomes?

Answer 1

It can be deduced that the expected monetary value (EMV) is relevant in the given situation and the way that will be used evaluate the consequences of uncertain outcomes.

What is expected monetary value?

The expected monetary value means how much money you can expect to make from a certain decision. Decision-making under uncertainty is to make a decision without knowing the possible outcome of the situation.

In this case, the decision-makers estimate the possible chance of a hurricane hitting the island and the probability distribution of the damage that will be caused by it if in case it really happens.

These are extremely difficult probabilities to estimate as the damage estimation can be both damages to property as well as damage to human beings.

In a situation such as this, it is impossible to avoid difficult trade-offs between the losses incurred by monetary losses and the losses incurred by human losses.

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