Decision making subject to aversion of low frequency high consequence events

Authors

Matthias Schubert, Michael H. Faber and Jack W. Baker

Abstract

The present paper focuses on the risk assessment of low frequency high consequence events. In current policies often risk aversion is introduced either to account for the behavior of the public or to include follow up consequences. It is discussed in detail whether the introduction of risk aversion in the context of normative decision making can lead to rational decisions. It is concluded that only a clear distinction between different kinds of consequences can lead to rational decisions which maximize the utility of the decision maker. A framework is presented that accounts for direct consequences and two different kind of indirect consequences. The framework facilitates a differentiated identification and treatment of risks and specifically addresses the modeling of possible consequences caused by the perception of adverse events by stakeholders.

Published in/by

Special Workshop on Risk Acceptance and Risk Communication, March 26-27, 2007, Stanford University, Stanford, USA.
Available on http://www.ripid.ethz.ch/