Firm Behavior in the Face of Severe Weather: Economic Analysis between Probabilistic and Deterministic Warnings

Abstract

AbstractTornadoes cause billions of dollars in damage and over 100 fatalities on average annually. Yet, an indirect cost to these storms is found in lost sales and/or lost productivity from responding to over 2000 warnings per year. This project responds to the Weather Research and Forecasting Innovation Act of 2017, H.R. 353, which calls for the use of social and behavioral science to study and improve storm warning systems. Our goal is to provide an analysis of cost avoidance that could accrue from a change to the warning paradigm, particularly to include probabilistic hazard information at storm scales. A survey of nearly 500 firms was conducted in and near the Dallas–Fort Worth metropolitan area asking questions about experience with tornadoes, sources of information for severe weather, expected cost of responding to tornado warnings, and how the firm would respond to either deterministic or probabilistic warnings. We find a dramatic change from deterministic warnings compared to the proposed probabilistic and that a probabilistic information system produces annual cost avoidance in a range of $2.3–$7.6 billion (U.S. dollars) compared to the current deterministic warning paradigm.