Engineering Decisions Under Risk-Averseness

Abstract

Engineering decisions are invariably made under substantial uncertainty about current and future system cost and response, including cost and response associated with low-probability, highconsequence events. A risk-neutral decision maker would rely on expected values when comparing designs, while a risk-averse decision maker might adopt nonlinear utility functions or failure probability criteria. The paper shows that these models for making decisions fall within a framework of risk measures that includes many other possibilities. General recommendations for selecting risk measures lead to decision models for risk-averse decision making that comprehensively represent risks in engineering systems, avoid paradoxes, and accrue substantial benefits in subsequent risk, reliability, and cost optimization.

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Document Details

Document Type
Technical Report
Publication Date
Dec 13, 2013
Accession Number
ADA591458

Entities

People

  • Johannes Ø. Røyset
  • R. T. Rockafellar

Organizations

  • Naval Postgraduate School

Tags

Communities of Interest

  • Human Systems

DTIC Thesaurus Topics

  • Algorithms
  • Costs
  • Distribution Functions
  • Engineering
  • Engineers
  • Life Cycle Costs
  • Life Cycles
  • Mathematics
  • Operations Research
  • Optimization
  • Probability
  • Probability Distributions
  • Random Variables
  • Reliability
  • Stochastic Processes
  • Uncertainty
  • Weighting Functions

Readers

  • Aviation Safety Risk Assessment.
  • Systems Analysis and Design
  • Team-Based Human-Centered Cognitive Task Decision Making and Information Performance.