A TREATISE ON THE USE OF EXPECTED VALUES IN WATER RESOURCE PROJECT EVALUATION1

This paper focuses on two factors that influence the acceptability of the expected value criterion as a method of handling risk or uncertainty in decision-making where damages from unusual physical occurrences such as hurricanes or floods must be considered. These are the length of time of project existence and the problem of obtaining accurate estimates of the probability of occurrence for different sizes of natural disasters. The problem of estimating accurate probabilities of occurrence for different sizes of natural disasters is not as great as it might appear and in most situations will not defeat the usefulness of the method. The time span during which the project is expected to exist has greater implications for the usefulness of the expected value approach appears highly applicable. However, it becomes less applicable for projects that are short-term in nature. The basis for distinguishing between short- and long-term projects is presented.