civ360&548homework1.html

SPRING 1998

CIV 360/548: Risk Assessment and Management

Prof. Erik VanMarcke

ASSIGNMENT #4

Issued on Monday, March 2; Due on Monday, March 9

Reminder: Open-book, in-class midterm on Wednesday, March 11

Do the following problems (involving the application of statistical decision theory) in your Course Notes Packet:

Problem 6-18 on page 80
Problem 8-8 on page 91

(You'll need to "skim" the two chapters from Y.I. Chou's book, starting on page 63 in the packet.)

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In addition, solve the following problem:

Your friend who went to California (and into business after high school) plans to build a new $500,000 home on a site overlooking Silicon Valley. He needs your advice, having become painfully aware of the earthquake hazard he faces: the site is on a steep slope known to be susceptible to landslides during earthquakes. During the period (about 10 years) he plans to live in the house, there is a 10% chance of a damaging earthquake that would cause a slide and the loss of the entire $500,000 investment. If such an earthquake occurs, it will be "moderate" with 80% probability and "severe" ("the Big One") with 20% probability. Your friend is considering three possible actions:

(1) do not provide earthquake protection (spend the $500,000 as planned and take the risk); or
(2) strengthen the foundations of the house, at the cost of an extra $5,000 so that the house would survive the moderate earthquake but not the big one; or
(3) spend an additional $50,000 to design and build a house that has a 90% chance of surviving the big earthquake.

Which of the three actions would you recommend, and why? Finally and briefly, what other factors, if any, do you think should to be taken into account to make this problem more realistic?