Communicating uncertainty in cost-benefit analysis: A cognitive psychological perspective

Communicating uncertainty in cost-benefit analysis: A cognitive psychological perspective

Mouter, N.
Holleman, M.
Calvert, S.C.
Annema, J.A.

Technology, Policy and Management

Infrastructures, Systems and Services

2013-12-31

Based on a cognitive psychological theory, this paper aims to improve the communication of uncertainty in Cost-Benefit Analysis. The theory is based on different cognitive-personality and cognitive-social psychological constructs that may help explain individual differences in the processing of uncertain information used for decision making. The most important conclusion that can be derived from this paper is that negative consequences of using heuristics when processing uncertain CBA outcomes can be reduced when CBA practitioners first communicate the uncertainty surrounding welfare effect estimations – such as bandwidths, ranges and chances of outliers – and only then carefully give some indications as to what could be plausible outcomes. This is in sharp contrast to what is the common practice in the Netherlands of primarily presenting welfare impact point estimations. Moreover, this paper discusses the level of uncertainty in regard to travel time savings provided by new rush-hour lanes on the A9 highway in Amsterdam. Uncertainty surrounding the travel times for the considered project are calculated through the application of an advanced Monte Carlo traffic model, called INDY-MC. The findings of this case study unambiguously demonstrate that the uncertainty surrounding estimations of travel time benefits in CBA can be immense. Although a prominent communication of the immense uncertainties reduces the negative consequences of using heuristics in general, for some types of decision makers, new problems will arise when they are confronted with large uncertainties in CBA outcomes. In this study, we developed a cognitive psychological conceptual framework of motivation which was used to find some recommendations for decreasing these new problems. From this framework we derive that increasing personal fear of invalidity might stimulate in inviduals that process information heuristically to consider uncertain results of the CBA report in a more in-depth way. Another remedy is to enhance the presentation of the results and optimize other environmental characteristics of the message. Lastly, training that enhances the ability of individuals to process CBA reports that communicate an uncertain message might result in a more systematic way of processing the information. The results of our study may enhance insights into the question of how – and how prominently – uncertainty in welfare effect estimations should be communicated in CBA reports so that users with different personality and social psychological characteristics are able to understand the information and still evaluate the information as useful input in the decision-making process.

http://resolver.tudelft.nl/uuid:f694a023-1e35-4a81-9376-63d424cba8aa

1st International Conference on Uncertainties in Transport Infrastructure Evaluation (UNITE), Copenhagen, Denmark, 16-18 September 2013

Institutional Repository

conference paper

(c) 2013 Mouter, N., Holleman, M., Calvert, S.C., Annema, J.A.