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Risk Analysis and Decision Theory: Foundations

Author

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  • Emanuele Borgonovo
  • Veronica Cappelli
  • Fabio Maccheroni
  • Massimo Marinacci

Abstract

The triplet-based risk analysis of Kaplan and Garrick (1981) is the keystone of state-of-the-art probabilistic risk assesment in several applied fields. This paper performs a sharp embedding of the elements of this framework into the one of formal decision theory, which is mainly concerned with the methodological and modelling issues of rational decision making. In order to show the applicability of such an embedding, we also explicitly develop it within a nuclear probabilistic risk assessment, as prescribed by the U.S. NRC. The aim of this exercise is twofold: on the one hand, it gives risk analysis a direct access to the rich toolbox that decision theory has developed, in the last decades, in order to deal with complex layers of uncertainty; on the other, it exposes decision theory to the challenges of risk analysis, thus providing it with broader scope and new stimuli.

Suggested Citation

  • Emanuele Borgonovo & Veronica Cappelli & Fabio Maccheroni & Massimo Marinacci, 2015. "Risk Analysis and Decision Theory: Foundations," Working Papers 556, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:556
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    References listed on IDEAS

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    1. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Classical Subjective Expected Utility," Working Papers 400, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. George E. Apostolakis, 2004. "How Useful Is Quantitative Risk Assessment?," Risk Analysis, John Wiley & Sons, vol. 24(3), pages 515-520, June.
    3. E. Borgonovo & C. L. Smith, 2011. "A Study of Interactions in the Risk Assessment of Complex Engineering Systems: An Application to Space PSA," Operations Research, INFORMS, vol. 59(6), pages 1461-1476, December.
    4. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2013. "Ambiguity and robust statistics," Journal of Economic Theory, Elsevier, vol. 148(3), pages 974-1049.
      • Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Tim Bedford, 2013. "Decision Making for Group Risk Reduction: Dealing with Epistemic Uncertainty," Risk Analysis, John Wiley & Sons, vol. 33(10), pages 1884-1898, October.
    6. George E. Apostolakis & Susan E. Pickett, 1998. "Deliberation: Integrating Analytical Results into Environmental Decisions Involving Multiple Stakeholders," Risk Analysis, John Wiley & Sons, vol. 18(5), pages 621-634, October.
    7. Robert T. Clemen & Terence Reilly, 1999. "Correlations and Copulas for Decision and Risk Analysis," Management Science, INFORMS, vol. 45(2), pages 208-224, February.
    8. Raymond F. Boykin & Raymond A. Freeman & Reuven R. Levary, 1984. "Risk Assessment in a Chemical Storage Facility," Management Science, INFORMS, vol. 30(4), pages 512-517, April.
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    Cited by:

    1. Emanuele Borgonovo & Veronica Cappelli & Fabio Maccheroni & Massimo Marinacci, 2016. "Model Uncertainty in Risk Analysis and Decision Theory: A Preliminary Investigation," Working Papers 592, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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