Risk Matrix Integrating Risk Attitudes Based on Utility Theory.

Area of Science:

• Decision Analysis
• Risk Management
• Behavioral Economics

Background:

• Risk matrices are crucial for risk assessment but often overlook decision-maker risk attitudes.
• This omission represents a significant limitation in current risk evaluation methodologies.

Purpose of the Study:

• To propose a novel approach for establishing risk matrices that integrates decision-maker risk attitudes.
• To enhance the comprehensiveness and accuracy of risk evaluation by incorporating psychological factors.

Main Methods:

• The proposed approach utilizes utility theory to describe decision-maker risk attitudes via utility functions.
• Utility indifference curves are employed to bridge the gap between utility functions and the risk matrix.
• Discretization of utility indifference curves is performed to finalize the risk matrix.

Main Results:

• A comprehensive risk matrix establishment process is detailed, grounded in practical investigations.
• Decision-makers' questionnaire responses are used to define boundary values and utility functions.
• The method effectively quantifies individual risk attitudes, leading to more personalized risk matrices.

Conclusions:

• Integrating risk attitudes into risk matrix establishment significantly improves risk evaluation.
• The proposed utility theory-based approach offers a more robust and realistic framework for risk management.
• This methodology provides a practical tool for quantifying and incorporating subjective risk preferences.