Question

Please respond to the questions in essay format. Times New Roman, font size 12 (double space) and min. 1 page each question.

1) How would you describe risk-averse vs. risk-seeking? (5 points)

2) Would fixing the levee system have been a good investment in the case of Katrina? (taking the probability vs. risk-averse approach into consideration that some officials based their decision) (5 points)

What do you think, how cognitive biases distort our thinking and influence our beliefs or decisions? Why did all levels of government fail to properly execute the national emergency response plan (developed in the wake of 9/11) during Katrina?

Answer 1

1)A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks. In other words, among various investments giving the same return with different level of risks, this investor always prefers the alternative with least interest.A risk averse investor avoids risks. S/he stays away from high-risk investments and prefers investments which provide a sure shot return. Such investors like to invest in government bonds, debentures and index funds.

Risk-seeking is an acceptance of greater volatility and uncertainty in investments or trading in exchange for anticipated higher returns. Risk seekers are more interested in capital gains from speculative assets than capital preservation from lower risk assets.Risk seekers understand, or should understand, the trade-off between risk and return. Generally, higher risk implies higher return potential, although the quality of the asset in question must be considered beforehand to ascertain whether there is sufficient return potential to justify the risk involved.

2)A levee is a natural or artificial wall that blocks water from going where we don't want it to go. Levees may be used to increase available land for habitation or divert a body of water so the fertile soil of a river or sea bed may be used for agriculture. They prevent rivers from flooding cities in a storm surge. The concept of risk encompasses both the probability of a failure and the consequences of the failure. Risk is generally defined as the product of probability and consequences. it has been analysed by experts  that the levee system catastrophically fails if the design water level is exceeded..During Katrina flood defences have failed due to other causes, such as geo technical failure mechanisms such as instability. Therefore, the analysis of the contribution of these mechanisms to failure is strongly recommended . The impact of including other mechanisms in the analysis is limited if the reconstructed water defences are build in such a way that the probability of failure is very low if the water levels are below the design water level.But if the water levels are very high such as the case of Katrina then its not going to be of any benefit.

While we might all like to believe that we are rational and logical, the sad fact is that we are constantly under the influence of cognitive biases that distort our thinking, influence our beliefs, and sway the decisions and judgments we make each and every day.Sometimes these biases are fairly obvious, and you might even find that you recognize these predispositions. Others are so subtle that they are almost impossible to notice.Since our attention is a limited resource and we can't possibly evaluate every possible detail and event ​in forming our thoughts and opinions, there is ample room for these biases to enter our thought process and affect our decisions.

All levels of government fail to properly execute the national emergency response plan (developed in the wake of 9/11) during Katrina may be because of the following reason:

Critical elements of the national response plan were executed late, ineffectively;or not at all ,

It does not appear the president received adequate advice and counsel from a senior disaster professional ,

Given the well-known consequences of a major hurricane hitting New Orleans, the Secretary should have designated an incident of national significance no later than Saturday, two days prior to landfall, when the National Weather Service predicted New Orleans would be struck by a Category 4 or 5 hurricane and President Bush declared a Federal Emergency

The Secretary should have convened the IIMG , two days prior to landfall, or earlier to analyze Katrina’s potential consequences and anticipate what the federal response would need to accomplish.

*If you are satisfied with the answer please give a thumbs up and if you have any doubts leave a comment.