Title: Preferences, utility and risk perception in engineering decision making

Authors: Marc A. Maes, Michael H. Faber

Addresses: Civil Engineering Department, University of Calgary, Calgary, T2N 1N4, Canada. ' Department of Structural Engineering, Swiss Federal Institute of Technology, ETH-Honggerberg, CH-8093, Switzerland

Abstract: The present paper focuses on the role and the modelling of preferences in risk based decision making for engineering systems, with special emphasis on the dislike of severe consequences. This involves the use of appropriate utility models and a proper understanding of the many aspects of risk perception. The basic premise of this paper is that the risk aversion intrinsic to nonlinear utility functions can almost always be explained by the non-inclusion of indirect and |follow-up| consequences. Several aspects of risk perception and preference ranking can be interpreted as the result of the decision maker|s voluntary or involuntary unwillingness to account for consequences that are triggered by extreme losses, such as excessive business losses, loss of reputation or other indirect or so-called intangible losses.

Keywords: consequence modelling; design decisions; life cycle utility; preference modelling; preferences; risk aversion; risk perception; utility; engineering decision making; risk assessment; risk management.

DOI: 10.1504/IJRAM.2007.014661

International Journal of Risk Assessment and Management, 2007 Vol.7 No.6/7, pp.813 - 827

Available online: 23 Jul 2007 *

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