RUINS- Risk, Uncertainty and Insurance under Climate Change. Coastal Land Management on the German North Sea

RUINS investigates risk, uncertainty and in­sur­ance of climate change adaptation measures along the German North Sea coast. Un­cer­tain­ty about the future consists of in­de­ter­mi­nate Knightian un­cer­tain­ty and quantifiable risk: the behavior of society in future decades has such a large as well as unpredictable influence on climate change severity that no probability can be calculated for individual development paths (RCPs/SSPs) (Knightian un­certainty). However, if a climate change sce­na­rio is assumed as a framework con­di­tion, environmental modeling can be used to make predictions for the impact of adap­ta­tion measures and their probability dis­tri­bu­tion (risk). Using examples of ecosystem ser­vices from three land-use sectors - agri­cul­ture, wind power generation, and flood con­trol - we develop procedures for the com­bined analysis and communication of risk and uncertainty. The goal is to help decision makers understand the importance of un­cer­tain­ty in the decision-making process.

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The combined risk and uncertainty analysis has shown that in the presence of Knightian uncertainty, options other than those in the simple risk analysis are attractive. These robust options minimize uncertainty between future scenarios and act as insurance. In this context, the decision maker's subjective attitude toward risk and uncertainty has a major influence on the exact relationship among the options for action.
The experiments showed that known sociodemographic parameters (age, education, satisfaction) are also relevant for the risk and uncertainty preferences of the local population. However, gender and income did not affect preference differences.

In the objective risk analysis (left) of individual courses of action (here: the mix of three crops), 100% corn achieves the maximum yield in RCP2.6, and mixes of wheat and corn achieve the lowest variance in yield. How­ever, looking at all three future scenarios (middle), clearly 100% wheat is the highest yield option with the smallest difference between RCPs, whereas 100% corn has the widest possible range and thus the greatest uncertainty. However, the degree to which the dif­fer­ences between RCPs (Knightian uncertainty) are evaluated depends on the risk and un­cer­tain­ty aversion of the decision maker (right): when the perception of risk or uncertainty is neutral, options can only be distinguished from each other by their utility (far left); as risk and uncertainty aversion increase, the field of options for action fans out, making options with similar utility clearly distinguishable from each other. The uncertainty of an option can be compensated by a premium; this increases significantly with stronger uncertainty aversion.