Dynamic Benefit-cost Analysis in Uncertain Future

The future is uncertain; however, this does not need to be a confusing factor for decision-makers. Decision-makers are often confronted with the problem of making decisions to uncertain future, which could result in wrong decisions. However, decision-makers today are challenged with the policy of employing a dynamic benefit-cost analysis as depending on one framework could prove wrong decision making, especially in this uncertain future. Based on Dudeley et al. (2019), the logic behind a dynamic benefit-cost analysis is that decision-makers should understand the uncertainty surrounding the future and the risks involved.

The article states that the perception of risks can be uninformed, inaccurate, or misinformed. Likewise, it could be ambiguous. Therefore, it advises decision-makers to employ dynamic analytic frameworks that recognize the truth about risks uncertainty. It asserts that dynamic benefit-cost frameworks incorporate uncertainties and tradeoffs across policymakers (Dudley et al., 2019). I feel this is a good strategy that decision-makers should adopt for several reasons. Firstly, it offers a wide range of decisions that they can incorporate. Using different analytic frameworks could help decision-makers use diverse information to determine the future. Through the information, they find a wide range of decision options that they can choose from.

Secondly, a dynamic BCA considers tradeoffs. This means that when a decision-maker incorporates several analytical frameworks, it is likely that they will arrive at a tradeoff, unlike when they use a single framework. This is because dynamic BCA considers mitigating risk from a perspective of varying strengths and weaknesses. It does not merely depend on the present future but also the unforeseen uncertainties of the future. For example, when deciding whether to upgrade the currency, policy or decision-makers who use dynamic BCA frameworks incorporate the uncertainties that dictate whether they will have a tradeoff or not. For example, they look at what is likely to happen regarding an upgrade of the currency by analyzing various aspects of life. With that, they will likely decide that will result in a tradeoff rather than losing it all.

However, the main challenge of using dynamic BCA frameworks could be which exact information decision-makers should use given that the future is uncertain and perception of risks could be inaccurate. Even though they employ dynamic BCA frameworks, the information they will base their decisions on becomes a challenge. Due to this, learning from experience is an excellent strategy to overcome the challenge. Out of experience, they would know which frameworks work and which do not. In that case, good decision-making might not commence from one-time incorporation of dynamic benefit-cost analysis frameworks. The process has to be done several times to draw experience.

To sum up, despite the uncertain future, decision makers still have room for making sound decisions that result in essential tradeoffs and minimize risks. They need to recognize that using a single benefit-cost analysis framework might not help them make effective decisions for the uncertain future. This is because the uncertainty of the future requires a combination of tools that recognizes tradeoffs by considering the perceptions of risks as uninformed, inaccurate, ambiguous, and misinformed. The diverse frameworks should help them analyze the future from different perspectives based on the tools. The uncertainty in today’s economy also calls for proactive decisions and policymakers, who recognize that an uncertain future should not be an excuse to make wrong decisions or decisions that will not lead to a tradeoff. Hence, incorporating dynamic benefit-cost analysis frameworks is crucial in making economic decisions in the uncertain future.

Reference Dudley, S. E., Pérez, D. R., Mannix, B. F., & Carrigan, C. (2019). Dynamic benefit-cost analysis for uncertain futures. Jour