ABSTRACT
This chapter introduces capacity in order to represent the decision-maker’s attitude toward hard uncertainty. Uncertainty means that consequences of development decisions cannot be fully determined ex-ante and all the uncontrolled variables of the decision process are random variables and their behavior only depends on the possible state of nature that will occur in the future. On the basis of some recent developments in decision theory, which stress the distinction between Knightian risk and Knightian uncertainty, in order to take into account of imprecise information, the chapter outlines some procedure to generalize the notions of option value and to update the total economic value of environmental assets. The decision-maker expresses hard uncertainty aversion if she/he assigns larger probabilities to states when they are unfavorable, than when they are favorable, that is if her/his non-additive measure is convex. Hence, the convexity of the capacity that implies superadditivity of the Choquet integral captures the decision-maker’s attitude toward hard uncertainty.
