Hi! I have to give a presentation tomorrow on a topic I worked long ago, and I have forgotten how it is done. I have been looking for sources of info on the internet but with no success so far and finding contradicting info, and I don't have time to study Statistics again, so I wonder if someone could help me with a simple question:
Imagine that you live by the river side and are subject to river floods, as soon as the water goes up more than 1m over its normal level (1/50years probability of occurrence), then you decide to build a wall of 1m height that will protect you until floods of 1/500years probability of occurrence, you are unprotected against bigger floods. Anytime there is a flood at home, you lose 10,000$, and the wall is designed to last 20yr. So this is more or less a simplification of the case. I cannot find mathematical expressions for this, and my doubt is: in order to evaluate the economical benefit of the wall...is it right to just add up the amount of risk reduced every year, just a sum of all the 20 years? The wall is reducing the risk the following amount every year: 10,000* (0.02-0.002)=180$, so ignoring discount rates, is it ok to say that the total risk reduction is 180*20= 3,600$?
Imagine that you live by the river side and are subject to river floods, as soon as the water goes up more than 1m over its normal level (1/50years probability of occurrence), then you decide to build a wall of 1m height that will protect you until floods of 1/500years probability of occurrence, you are unprotected against bigger floods. Anytime there is a flood at home, you lose 10,000$, and the wall is designed to last 20yr. So this is more or less a simplification of the case. I cannot find mathematical expressions for this, and my doubt is: in order to evaluate the economical benefit of the wall...is it right to just add up the amount of risk reduced every year, just a sum of all the 20 years? The wall is reducing the risk the following amount every year: 10,000* (0.02-0.002)=180$, so ignoring discount rates, is it ok to say that the total risk reduction is 180*20= 3,600$?