ABSTRACT
Public as well as private investments differ in the degree of uncertainty as to outcomes. History is replete with examples of project failures, cost overruns in the construction of public projects, and private bankruptcies. Uncertain events have more than one possible outcome. Risky events are uncertain events of importance to the decision makers as the outcomes affect well-being. Some understanding of risk relationships may be obtained from application of the concept of certainty equivalents. The realistic evaluation of the cost of risk is a particularly troublesome aspect of the artificiality of bidding games. Further thought might be given to asking the political authorities to adopt a utility function. Instead of trying to construct a utility function from responses in a bidding game of chance, several examples of possible functions might be submitted to authorities for their confirmation. Benefit-cost analysis requires data on the certainty equivalent of an uncertain project result.
