In a city at the bottom of a mountain with rivers flowing through it, where would you choose to live?
Rainfall high in the mountains can cause floods on the flat ground that you are able to build on.
Different rainfall amounts cause floods of different magnitudes inundating areas of varying size. Larger floods are less likely than smaller floods.
A highway in the city has bridges that cross the rivers. One is a large-span bridge, but two are smaller bridges. Sediment carried by floods can block the bridges, but not all floods carry enough sediment to cause the bridges to be blocked.
To help you decide where to build your house, 5 years of flood data is provided. Beware: the historical data available might not include the largest floods.
After placing your house it has a value of 100. Over time the house value will increase if it is not flooded, but the value will decrease if it is inundated by a flood.
The increase in value is greater if you are close to a river, because people like to live near to rivers, and is smaller far from a river.
If a flood reaches your house, the value will fall by a fixed proportion of the current value.
So if you live near to a river, the value will rise more quickly, but there is a higher chance of the house being flooded.
The goal is to maximize the value after many years. How much risk do you take in placing your house?
