Toward Considering Risk Attitudes in Engineering Organizations Using Utility Theory

2012 ◽  
Author(s):  
Douglas Van Bossuyt ◽  
Chris Hoyle ◽  
Irem Y. Tumer ◽  
Andy Dong ◽  
Toni Doolen ◽  
...  
Keyword(s):  
Decision Making ◽  
Risk Attitude ◽  
Expected Value ◽  
Utility Functions ◽  
Risk Attitudes ◽  
Risk Averse ◽  
Past Performance ◽  
Domain Specific ◽  
Specific Risk ◽  
Engineering Organizations

Design projects within large engineering organizations involve numerous uncertainties that can lead to unacceptably high levels of risk. Practicing designers recognize the existence of risk and commonly are aware of events that raise risk levels. However, a disconnect exists between past project performance and current project execution that limits decision-making. This disconnect is primarily due to a lack of quantitative models that can be used for rational decision-making. Methods and tools used to make decisions in risk-informed design generally use an expected value approach. Research in the psychology domain has shown that decision-makers and stakeholders have domain-specific risk attitudes that often have variations between individuals and between companies. Risk methods used in engineering such as Failure Modes and Effects Analysis (FMEA), Fault Tree Analysis (FTA), and others are often ill-equipped to help stakeholders make decisions based upon risk-tolerant or risk-averse decision-making conditions. This paper focuses on the specific issue of helping stakeholders make decisions under risk-tolerant or risk-averse decision-making conditions and presents a novel method of translating engineering risk data from the domain of expected value into a domain corrected for risk attitude. This is done by using risk utility functions derived from the Engineering-Domain-Specific Risk-Taking (E-DOSPERT) test. This method allows decisions to be made based upon data that is risk attitude corrected. Further, the method uses an aspirational measure of risk attitude as opposed to existing lottery methods of generating utility functions that are based upon past performance. An illustrative test case using a simplified space mission designed in a collaborative design center environment is included. The method is shown to change risk-informed decisions in certain situations where a risk-tolerant or risk-averse decision-maker would likely choose differently than the dictates of the expected value approach.

Risk attitudes in risk-based design: Considering risk attitude using utility theory in risk-based design

2012 ◽  
Vol 26 (4) ◽  
pp. 393-406 ◽  
Author(s):  
Douglas Van Bossuyt ◽  
Chris Hoyle ◽  
Irem Y. Tumer ◽  
Andy Dong
Keyword(s):  
Collaborative Design ◽  
Failure Modes ◽  
Expected Value ◽  
Utility Functions ◽  
Risk Attitudes ◽  
Risk Averse ◽  
Domain Specific ◽  
Industrial Sectors ◽  
Specific Risk ◽  
Risk Appetite

AbstractEngineering risk methods and tools account for and make decisions about risk using an expected-value approach. Psychological research has shown that stakeholders and decision makers hold domain-specific risk attitudes that often vary between individuals and between enterprises. Moreover, certain companies and industries (e.g., the nuclear power industry and aerospace corporations) are very risk-averse whereas other organizations and industrial sectors (e.g., IDEO, located in the innovation and design sector) are risk tolerant and actually thrive by making risky decisions. Engineering risk methods such as failure modes and effects analysis, fault tree analysis, and others are not equipped to help stakeholders make decisions under risk-tolerant or risk-averse decision-making conditions. This article presents a novel method for translating engineering risk data from the expected-value domain into a risk appetite corrected domain using utility functions derived from the psychometric Engineering Domain-Specific Risk-Taking test results under a single-criterion decision-based design approach. The method is aspirational rather than predictive in nature through the use of a psychometric test rather than lottery methods to generate utility functions. Using this method, decisions can be made based upon risk appetite corrected risk data. We discuss development and application of the method based upon a simplified space mission design in a collaborative design-center environment. The method is shown to change risk-based decisions in certain situations where a risk-averse or risk-tolerant decision maker would likely choose differently than the expected-value approach dictates.

scholarly journals Decision-making competence predicts domain-specific risk attitudes

2015 ◽  
Vol 6 ◽  
Author(s):  
Joshua A. Weller ◽  
Andrea Ceschi ◽  
Caleb Randolph
Keyword(s):  
Decision Making ◽  
Risk Attitudes ◽  
Domain Specific ◽  
Specific Risk

Information Fake in Supply Chains

2011 ◽  
Vol 267 ◽  
pp. 958-962
Author(s):  
Jiang Hong
Keyword(s):  
Decision Making ◽  
Supply Chain ◽  
Supply Chains ◽  
Information Management ◽  
Stable Distribution ◽  
Risk Attitude ◽  
Risk Averse ◽  
Stable States ◽  
Stochastically Stable

In this paper, we set risk attitude into decision making research for the supply chain manage. We focus on the information management. We discuss the stable states and the stochastically stable distribution for the fake game in the supply chain. We find there always exist information fake behaviors of low-yield suppliers. And, the less risk averse suppliers are, the more information fake they use.

On Measuring Engineering Risk Attitudes1

2013 ◽  
Vol 135 (12) ◽  
Author(s):  
Douglas L. Van Bossuyt ◽  
Andy Dong ◽  
Irem Y. Tumer ◽  
Lucila Carvalho
Keyword(s):  
Professional Practice ◽  
Engineering Students ◽  
Risk Attitude ◽  
Engineering Ethics ◽  
Risk Attitudes ◽  
Engineering Practice ◽  
Design Decisions ◽  
Personal Attitude ◽  
Domain Specific ◽  
Risk Processes

Risk management is a critical part of engineering practice in industry. Yet, the attitudes of engineers toward risk remain unknown and are not measured. This paper presents the development of a psychometric scale, the engineering-domain-specific risk-taking (E-DOSPERT) test, to measure engineers' risk aversion and risk seeking attitudes. Consistent with a similar psychometric scale to assess general risk attitudes, engineering risk attitude is not single domain and is not consistent across domains. Engineers have different risk attitudes toward five identified domains of engineering risk: processes, procedures and practices; engineering ethics; training; product functionality and design; and legal issues. Psychometric risk profiling with E-DOSPERT provides companies a standard to assess domain-specific engineering risk attitude within organizations and across organizations. It provides engineering educators a standard to assess the understanding of engineering students to the types of risks they would encounter in professional practice and their personal attitude toward responding to those risks. Appropriate interventions can then be implemented to shape risk attitudes as appropriate. Risk-based design decisions can also be shaped by a better understanding of engineer and customer risk attitude. Understanding engineers' risk attitudes is crucial in interpreting how individual engineers will respond to risk in their engineering activities and the numerous design decisions they make across the various domains of engineering risk found in professional practice.

scholarly journals A Kind of Risk-Sensitive Group Decision-Making Based on MDP

2012 ◽  
Vol 6-7 ◽  
pp. 267-272
Author(s):  
Ming Shan You ◽  
Wei Zeng ◽  
Hong Tao Zhou
Keyword(s):  
Decision Making ◽  
Utility Function ◽  
Group Decision Making ◽  
Group Decision ◽  
Critical Role ◽  
Risk Attitude ◽  
Risk Attitudes ◽  
Personal Risk ◽  
Risk Sensitive ◽  
Sensitive Group

One-switch utility function is used to describe how the risk attitude of a decision maker changes with his wealth level. In this paper additive decision rule is used for the aggregation of decision member’s utility which is represented by one-switch utility function. Based on Markov decision processes (MDP) and group utility, a dynamic, multi-stages and risk sensitive group decision model is proposed. The proposed model augments the state of MDP with wealth level, so the policy of the model is defined as an action executed in a state and a wealth level interval. A backward-induction algorithm is given to solve the optimal policy for the model. Numerical examples show that personal risk attitude has a great influence on group decision-making when personal risk attitudes of members are different, while the weights of members play a critical role when personal risk attitudes of members are similar.

Domain Specific Risk Attitude Scale

2002 ◽  
Author(s):  
Elke U. Weber ◽  
Ann-Renée Blais ◽  
Nancy Betz
Keyword(s):  
Risk Attitude ◽  
Attitude Scale ◽  
Domain Specific ◽  
Specific Risk

The pricing strategy of dual-channel supply chain with risk-averse agents and heterogeneous preference consumers

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rufeng Wang ◽  
Zhiyong Chang ◽  
Shuli Yan
Keyword(s):  
Supply Chain ◽  
Risk Control ◽  
Optimal Strategies ◽  
Risk Attitude ◽  
Risk Attitudes ◽  
Risk Averse ◽  
Content Type ◽  
Dual Channel ◽  
Heterogeneous Preference ◽  
Dual Channel Supply Chain

PurposeThe purpose of this paper is to investigate the pricing strategy and the impact of agents' risk preference in a dual-channel supply chain in which both agents are risk-averse.Design/methodology/approachThe authors make use of the mean-variance (MV) method to measure the risk aversion of the agents and apply Stackelberg game to obtain the optimal strategies of the proposed models. Furthermore, the authors compare the optimal strategies with that in the benchmark model in which no agent is risk-averse.FindingsThe authors find that the pricing decisions can be divided into four categories according to the risk attitudes of the agents: the decisions that are independent of two agents' risk attitudes, the decisions that depend on only one agent’s risk attitude (i.e. depend on only manufacturer's risk attitude and depend on only retailer's risk attitude) and the decisions that depend on both agents' risk attitudes. In addition, the authors find that the retail price will be lower and the wholesale price in most cases will be lower than that in the benchmark when at least one agent's risk control is effective; the demand will be always increasing as long as one agent's risk control is effective. Furthermore, compared to the benchmark, a win-win strategy (i.e. Pareto improvement) for the supply chain members can be obtained in a certain range where the agents' risk controls are appropriate.Originality/valueThis research provides a theoretical reference for the managers to make the pricing decisions and the risk control in dual-channel supply chains with heterogeneous preference consumers.

Comparison of Risk Aversity for Two Utility Functions on ℝ2

2019 ◽  
Vol 23 (3) ◽  
pp. 555-560
Author(s):  
Yuji Yoshida ◽  
Keyword(s):  
Decision Making ◽  
Sufficient Conditions ◽  
Utility Functions ◽  
Decision Makers ◽  
The Other ◽  
Necessary Condition ◽  
Risk Averse ◽  
Two Dimensional ◽  
Arithmetic Means

Utility functions on two-dimensional regions are demonstrated for decision makers’ risk averse behavior by weighted quasi-arithmetic means. For two utility functions on two-dimensional regions, a concept is introduced that decision making with one utility is more risk averse than decision making with the other utility. A necessary condition and sufficient conditions for the concept are demonstrated by their utility functions.

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