Decision modeling and acceptance criteria

Abstract

This paper is partly tutorial by presenting well known classical decision theory in a slightly untraditional form, but it does also present thinking and results that have not been published in the engineering literature before.The paper introduces the mathematical modeling basis for rational formulation of decision criteria and public acceptance criteria connected to risk analysis of technical operations that may endanger human life and property. Public restrictions on the decisions concerning the design, construction and managing of the technical operation have in the past been imposed on the basis of the frequency and severity of experienced adverse events. No clear rationale to decide how restrictive the public should be in setting a boundary for allowable risk seems to have been applied. To clarify this problem, focus is on the difficulty of simultaneously having two decision makers, the owner that tries to optimize the net gain of the operation, and the public that has somewhat different preferences than the owner, but also strong interests in the success of the owner. The principles of rational decision are needed for appreciation of the problem. Recognizing that there is an insurance compensation value of a human life and a public money equivalent of a human life, where the last value usually is considerably larger than the first value, it is possible from the decision analysis to determine an upper limit that the public should impose on the ratio of the owner´s expected loss rate to the expected gain rate. The public money equivalent of a human life is assessed by use of a recently in (Nathwani JS, Lind NC, Pandey MD. Afordable safety by choice: the life quality method. Waterloo, Ontario, Canada: Institute for Risk Research, University of Waterloo, 1997) suggested Life Quality Index (LQI) that combines wealth in terms of Gross Domestic Product per person, life expectancy at birth, and yearly work time into a single number. The philosophy behind the published evaluations is that the prevention of a loss of a life is counteracted by a cost such that the LQI remains unchanged (Skjong R, Ronold K. Societal indicators and risk acceptance. In: 17th International Conference on Offshote Mechanics and Arctic Engineering, number OMAE98-1488. ASME; 1998; Rackwitz R. Optimization and risk acceptability based on the Life Quality Index. Structural Safety 2002;24;297-331.). Keywords: Acceptance criteria; Decision Analysis; Life quality index; Random interest rate; Risk aversion; Socio-economic value; Uncertainty aversio