The risk of surprise in energy technology costs

Abstract

As countries begin to reassess and expand their energy research and development programs, it is appropriate to understand the likely costs of alternate approaches. Unfortunately, communities of experts have a well-known optimistic bias in their judgments. We review findings from several disciplines that underscore this tendency toward overconfidence as well as some proposed alternatives to incorporate it in public decision-making. We further argue, based on a disaggregated analysis of US nuclear power costs, that incorporating a second-order uncertainty in the shape of the distribution of cost components is essential for capturing important elements of uncertainty in moving forward with expanded energy R&D programs.

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