For those of a statistical inclination (i.e., neoclassical economists using expected utility), risk is the way to go and uncertainty is ignored. That's a fine idea in the casino but a miserable one when you are dealing with a mad dog.
Climate change is one such dog, and this essay [PDF] takes apart the conventional wisdom of using risk and cost-benefit analysis (CBA) to examine climate change (as the Stern Review did):*
It is now acknowledged that the economics of climate change is now more appropriately concerned with uncertainty rather than return, a feature of the problem that has been evident from the early 1990s, when the scientific assessments began in earnest. It can also reasonably be argued that CBA is useless for the climate problem because of the uncertainty and risks of catastrophe. The discounting of costs and benefits in which risks are converted into certainty equivalents and discounted at market rates has been shown to be misleading and biased. This in turn implies that the economic problem is one of achieving political targets, based on scientific evidence, at lowest costs compatible with equity and effectiveness, rather than with the economics of choosing the targets themselves.Bottom Line: Economic analysis must use methods appropriate to the problem, and climate change requires that we consider uncertainty. Tough.
hattip to DS
* and this paper [pdf] critiques Stern as too neoclassical.