OIDD 261 Lecture Notes - Lecture 4: American Petroleum Institute, Permissible Exposure Limit, Type I And Type Ii Errors
1 Jun 2018
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Notes from Slides 5:
Expected Value of Perfect Information (EVPI)
• How much would you pay for perfect data on what will happen (the way to find this value
is by creating a decision tree, then finding the difference between the expected value of
each branch after the decision)
**bayesian conditioning**
• Likelihood a women with a positive test actually has breast cancer
• Type 1 error: does not have disease but positive test result
• Type 2 error: has disease but negative test result
OSHA’s Benzene Standard Problem
• The Occupational Safety and Health Administration (OSHA) finalized a standard for
benzene which requires a permissible exposure limit of 1 parts per million because of
the possibility that a person in the workplace may contract leukemia. This standard has
been challenged by the American Petroleum Institute because it claimed that OSHA had
failed to demonstrate a relationship between the costs of the new standards and the
expected health benefits. The total costs for companies to meet this standard is in the
millions relative to the OSHA standard of 10 ppm. The relationship between exposure to
small amounts of benzene and contraction of leukemia is not well-specified.
Notes from Slides 6:
Ford Decision Analysis for Changing Tank Installation
• Cost-benefit analysis
• Step 1: Specify Alternatives
• Step 2: Whose Benefits and Costs Count
• Step 3: Catalog Impacts and Select Measurement Indicators
• Step 4: Predict Impacts over Life Period
• Step 5: Monetize All Impacts
• Step 6: Discount Benefits and Costs to Obtain Present Values
• Step 7: Compute Net Present Value of Each Alternative
• Step 8: Undertake Sensitivity Analysis
• Step 9: Make a Recommendation Based on NPV and Sensitivity Analysis
Pinto Case:
• Claims by Dowie in his Pulitzer Prize winning expose Pinto Madness
• Pinto had unique safety problems
• Key decision makers understood these problems
• Decision-makers made unethical decision based on profit maximization goal
• Use of Cost-Benefit Analysis (CBA)
• NHSTA used $200000 as VOL using future lost wages as basis for figure (much
lower than people would have liked to see)
• Ford sent its CBA to NHTSA but GM didn’t--why Ford had so much attention
Comparison of CBA and Decision Analysis
• Decision analysis is normally viewed from the viewpoint of a single interested party
• CBA has a societal perspective so that all affected parties are considered in the analysis
• Efficiency and equity tradeoffs need to be considered
• Focus is often on regulations and standards
• There are challenges in enforcing these rules
• Both decision analysis and CBA must consider
• Uncertainties associated with risk assessment
• Risk perception of individuals and groups
• Risk management strategies
Challenges in Utilizing CBA
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