The implications of irreversibility in emergency response decisions

The irreversibility effect implies that a decision maker who neglects the p rospect of receiving more complete information at later stages of a sequent ial decision problem will in certain cases too easily take an irreversible decision, as he ignores the existence of a positive option value in favour of reversible decisions. This option value represents the decision maker's flexibility to adapt subsequent decisions to the obtained information. In t his paper we show that the economic models dealing with irreversibility as used in environmental and capital investment decision making can be extende d to emergency response decisions that produce important irreversible effec ts. In particular, we concentrate on the decision whether or not to evacuat e an industrial area threatened by a possible nuclear accident. We show in a simple two-period evacuation decision model that non-optimal conclusions may be drawn when evacuation is regarded as a 'now or never decision'. The robustness of these results is verified by means of a sensitivity analysis of the various model parameters. The importance of 'options thinking' in th is decision context is illustrated in an example.