ABSTRACT
Up to this point, the discussion in this book has been based at least implicitly on the assumption of perfect certainty. For example, individuals have been assumed to know what prices, income, and environmental quality will prevail over the relevant planning horizon. This clearly cannot be literally true. And for some questions, the essence of the matter is uncertainty about some event or condition, such as the probability of an accident or a natural disaster (say, a flood) occurring or the probability of contracting a serious illness following exposure to a chemical. The topic of this chapter is how to define and measure changes in economic welfare when uncertainty is an important characteristic of the economic world in which people are living and making choices.
