Risk and Uncertainty Analysis with Networks of Decisions

In this paper an applied approach for analysing economic problems under risk and uncertainty based on networks of decisions (NODs) will be discussed. It can be shown that network of decision analysis can help to understand complex decision problems under risk and uncertainty in single case situations. A variety of decision criteria like expectation values and a special ANOVA can be used to get better knowledge about prediction and controllability of the decision problems.networks of decisions, decision criteria, variance analysis, prediction, control, Risk and Uncertainty,

Risk Analysis in Investment Appraisal

The methodology and uses of Monte-Carlo simulation technique are presented as applied to the analysis and assessment of risk in the evaluation of investment projects. The importance of risk analysis in investment appraisal is highlighted and the stages in the process introduced. The results generated by a risk analysis application are interpreted, including the investment decision criteria and measures of risk based on the expected value concept. Conclusions are drawn regarding the usefulness and limitations of risk analysis in investment appraisal.risk analysis; investment appraisal; Monte Carlo simulation; project evaluation; measures of risk; investment decision criteria

An Approach to Select Cost-Effective Risk Countermeasures Exemplified in CORAS

Risk is unavoidable in business and risk management is needed amongst others to set up good security policies. Once the risks are evaluated, the next step is to decide how they should be treated. This involves managers making decisions on proper countermeasures to be implemented to mitigate the risks. The countermeasure expenditure, together with its ability to mitigate risks, is factors that affect the selection. While many approaches have been proposed to perform risk analysis, there has been less focus on delivering the prescriptive and specific information that managers require to select cost-effective countermeasures. This paper proposes a generic approach to integrate the cost assessment into risk analysis to aid such decision making. The approach makes use of a risk model which has been annotated with potential countermeasures, estimates for their cost and effect. A calculus is then employed to reason about this model in order to support decision in terms of decision diagrams. We exemplify the instantiation of the generic approach in the CORAS method for security risk analysis.Comment: 33 page

Modifiable risk factors predicting major depressive disorder at four year follow-up: a decision tree approach

BACKGROUND: Relative to physical health conditions such as cardiovascular disease, little is known about risk factors that predict the prevalence of depression. The present study investigates the expected effects of a reduction of these risks over time, using the decision tree method favoured in assessing cardiovascular disease risk. METHODS: The PATH through Life cohort was used for the study, comprising 2,105 20-24 year olds, 2,323 40-44 year olds and 2,177 60-64 year olds sampled from the community in the Canberra region, Australia. A decision tree methodology was used to predict the presence of major depressive disorder after four years of follow-up. The decision tree was compared with a logistic regression analysis using ROC curves. RESULTS: The decision tree was found to distinguish and delineate a wide range of risk profiles. Previous depressive symptoms were most highly predictive of depression after four years, however, modifiable risk factors such as substance use and employment status played significant roles in assessing the risk of depression. The decision tree was found to have better sensitivity and specificity than a logistic regression using identical predictors. CONCLUSION: The decision tree method was useful in assessing the risk of major depressive disorder over four years. Application of the model to the development of a predictive tool for tailored interventions is discussed

Risk analysis in manufacturing footprint decisions

A key aspect in the manufacturing footprint analysis is the risk and sensitivity analysis of critical parameters. In order to contribute to efficient industrial methods and tools for making well-founded strategic decisions regarding manufacturing footprint this paper aims to describe the main risks that need to be considered while locating manufacturing activities, and what risk mitigation techniques and strategies that are proper in order to deal with these risks. It is also proposed how the risk analysis should be included in the manufacturing location decision process

The Financial Auditor’s Risk Behavior – The Influence of Age on Risk Behavior in a Financial Audit Context

A main issue in the audit process is the risk faced by the decision makers in every aspect of an audit process decision. The decision makers’ risk behaviour and their attitude towards risk is considered to be central to the way business risk, in general, and audit risk, in particular, is managed but no conclusive theory as to what influences the decision makers’ risk behaviour is commonly accepted. Although previous studies have brought arguments in favour of different factors considered to have an influence on the decision makers’ risk behaviour, what is not known is whether age has an influence on risk behaviour. This article advances the hypothesis that the auditor’s attitude towards risk is correlated with the auditor’s age, in a financial audit context. The methodological approach used was the survey of a representative sample using a carefully designed questionnaire and the use of statistical software to analyse the responses. The analysis of data collected revealed that there is a strong correlation between the financial auditor’s risk behaviour and the financial auditor’s age, confirming the research hypothesis as well as setting a starting point for future research.risk, age, financial audit, risk behaviour, correlation

Adversarial Risk Análysis for Counterterrorism Modelling

Recent large scale terrorist attacks have raised interest in models for resource allocation against terrorist threats. The unifying theme in this area is the need to develop methods for the analysis of allocation decisions when risks stem from the intentional actions of intelligent adversaries. Most approaches to these problems have a game theoretic flavor although there are also several interesting decision analytic based proposals. One of them is the recently introduced framework for adversarial risk analysis, which deals with decision making problems that involve intelligent opponents and uncertain outcomes. We explore how adversarial risk analysis addresses some standard counterterrorism models: simultaneous defend-attack models, sequential defend-attack-defend models and sequential defend-attack models with private information. For each model, we first assess critically what would be a typical game theoretic approach and then provide the corresponding solution proposed by the adversarial risk analysis framework, emphasizing how to coherently assess a predictive probability model of the adversary’s actions, in a context in which we aim at supporting decisions of a defender versus an attacker. This illustrates the application of adversarial risk analysis to basic counterterrorism models that may be used as basic building blocks for more complex risk analysis of counterterrorism problems

Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey

The influence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that the role model of an entrepreneur requires to make risky decisions in uncertain environments and hence that more risk-averse individuals are less likely to become an entrepreneur. Empirical tests of this assumption are scarce however, mainly because reliable measures for risk-aversion are not available. We base our analysis on the most recent waves of the German Socio-Economic Panel (SOEP) which allow us to use experimentally-validated measures of risk attitudes. Most importantly and in contrast to previous research, we are able to examine whether the decision of starting a business is influenced by objectively measurable risk attitudes at the time when this decision is made. Our results show that in general individuals with lower risk aversion are more likely to become self-employed. Sensitivity analysis reveals, however, that this is true only for people coming out of regular employment, whereas for individuals coming out of unemployment or inactivity risk attitudes do not seem to play a role in the decision process.Risk attitudes, entrepreneurship, self-employment.

Risk: a fiction

Uncertainty creates anxiety so attempts have been made to reduce it using mathematical techniques. In the electronics industry the very large quantities of devices processed have provided reliable statistics and the opportunity to employ statistical methods. However, in fields such as decision-making and risk assessment there are strong criticisms of the probability calculus that have been triggered by discrepancies between the analysis of experts and non-experts. A radically different alternative is to view risk assessment and decision-making as exercises in rhetoric centred on storytelling language games. And to see the risk assessors as part of a political network attempting to influence action