"Decision theory and real estate development: a note on uncertainty"

Real estate development appraisal is a quantification of future expectations. The appraisal model relies upon the valuer/developer having an understanding of the future in terms of the future marketability of the completed development and the future cost of development. In some cases the developer has some degree of control over the possible variation in the variables. However, other variables are totally dependent upon the vagaries of the market at the completion date. To try to address the risk of a different outcome to the one expected the developer will often carry out a sensitivity analysis on the development. This paper aims to look at the processes for so doing and the role of the decision maker in the analysis