A methodology for modeling influence diagrams: a case-based reasoning approach

In this paper, a case-based reasoning approach to build an influence diagram is described. Building an influence diagram in decision analysis is known to be a most complicated and burdensome process. To overcome such a difficulty, decision class analysis is suggested, which treats a set of decisions having some degree of similarity as a single unit. This research suggests a case-based reasoning approach as a methodology to analyze a class of decisions. The candidate influence diagrams are retrieved from a set of similar influence diagrams, a case base. They are combined and modified by the node classification tree and DM’s preference for the given decision problem. For such a purpose, the case representation and retrieval process is explained with the adaptation process. We suggest using two measure, the fitness and garbage ratio for the case retrieval process. The basic concept of decision class analysis and case-based reasoning is very similar so the case-based reasoning approach is believed to be a better methodology to implement a decision class analysis. Copyright © 2000 John Wiley & Sons, Ltd.     

An inductive reasoning approach for building system safety risk models of aviation accidents

An inductive reasoning approach is employed to develop a prototype hybrid decision support tool whose main objective is to build probabilistic causal models representing the safety risk involved in aviation accidents. In this context, 15 aircraft accidents representative of five major accident types are selected to build an initial seed for the case‐base of the prototype tool. Consequently, within each individual accident model, main clusters of causal factors are identified for inclusion in the initial seed, thereby improving, both quantitatively and qualitatively, the case‐base of the prototype tool. A new methodology developed specifically for indexing aviation accidents into databases is used for indexing the initial seed into the case‐base of the tool. The resulting product is a highly customized conversational decision support tool that provides solution possibilities in the form of probabilistic causal models of accident scenarios retrieved and ranked according to their similarity to the current accident that the intended user investigates.     

Dimensions of strategic intervention for risk reduction and mitigation: a case study of the MV Sewol incident

Organizations in disaster management system should learn from previous experience and strategically use their lesson for the refinement of a system’s competencies for risk management. However, the MV Sewol incident revealed the absence of the organizational learning in the Korean disaster management system. With mixed methods of content analysis, in-depth interview, and social network analysis, this study identified key failure factors in response to the incident and categorized them by managerial, structural, and institutional domains. While the Korean government took bold steps to rebuild its risk management system, those efforts were biased to structural reforms and lacked fundamental changes in human and informational resources management. Based on the findings, this study suggests the balanced efforts for system refinement for effective risk management.     

An analysis of a three-factor model proposed by the Danish Society of Actuaries for forecasting and risk analysis

This paper provides the explicit solution to the three-factor diffusion model recently proposed by the Danish Society of Actuaries to the Danish industry of life insurance and pensions. The solution is obtained by use of the known general solution to multidimensional linear stochastic differential equation systems. With offset in the explicit solution, we establish the conditional distribution of the future state variables which allows for exact simulation. Using exact simulation, we illustrate how simulation of the system can be improved compared to a standard Euler scheme. In order to analyze the effect of choosing the exact simulation scheme over the traditional Euler approximation scheme frequently applied by practitioners, we carry out a simulation study. We show that due to its recursive nature, the Euler scheme becomes computationally expensive as it requires a small step size in order to minimize discretization errors. Using our exact simulation scheme, one is able to cut these computational costs significantly and obtain even better forecasts. As probability density tail behavior is key to expected investment portfolio performance, we further conduct a risk analysis in which we compare well-known risk measures under both schemes. Finally, we conduct a sensitivity analysis and find that the relative performance of the two schemes depends on the chosen model parameter estimates.     

农业巨灾风险管理的比较制度分析:一个文献研究

很多研究表明巨灾风险的存在是我国农业保险市场失灵的一个主要原因,对其背后的原因从微观层面进行了诸多论证,并提出了相应的巨灾风险分散的手段,但对于农业巨灾风险管理的研究则刚起步.至于从制度层面进行深入研究的文献,更是少之又少.本文以大量的现有文献研究为基础,首次运用比较制度分析对农业巨灾风险管理进行制度层面的分析,认为互...     

Towards a fair procedure for risk management

The need for fairness in risk management is frequently expressed in the risk literature. In this article, fairness is connected to the procedure for decision‐making. Two models for procedural justice in the management of risks are discussed, one that focuses on a hypothetical thought experiment, and one that focuses on actual dialogue. The hypothetical approach takes John Rawls’ theory of justice as a starting point. The actual inclusion approach employs Iris Marion Young’s theory of inclusive deliberative democracy. With Rawls’ theory, important issues concerning risk distribution are emphasized, and a parallel between social primary goods and risk management is drawn. The hypothetical reasoning should mainly serve as a guide concerning risk issues that affect people who cannot be included in the decision procedure, such as future generations. However, when the affected can be included, an interactive dialogical reasoning is to be preferred. Here, Young’s theory is fruitful. It aims at fair decisions by fulfilling conditions of inclusiveness, equality, reasonableness and publicity.     

A proposed enterprise risk management model for health organizations

Health care organizations are environments with high management complexity and subject to a constant exposure to risks. Enterprise risk management (ERM) has been studied and applied in different economic environments with the aim of improving organizational performance. However, the health sector still suffers from a lack of attention in this context, in particular with regard to the need for a high degree of financial transparency and for the establishment of process-orientated management, and this provides the motivation for the study described in this paper. An ERM model for health organizations is proposed, based on a systematic literature review and on seven case studies in Brazilian hospitals. An approach to economic risk assessment using indicators such as the cash flow at risk and the variability of costs and receipts from the proposed model is suggested. The health organizations involved in the case studies all interpret ERM as a source of information contributing to corporate governance, and the indicators listed provide constructive data for improvement-driven decision-making. Given the interest expressed by the organizations involved, further application and validation of the proposed model in subsequent studies is suggested.     

基于战略风险管理模式下的养老保险公司风险管理分析

战略风险管理模式是金融企业比较流行的一种全面风险管理模型。本文在分析养老保险公司业务经营及风险管理特殊性的基础上,应用战略风险管理基本思想,提出了当前形势下养老保险公司风险管理的核心问题,并对公司目前面临的风险类别、风险因素以及风险管控措施进行了分析研究。     

A decision analytic approach for technology portfolio prioritization: aviation safety applications

A decision analytic approach for evaluating new aviation safety products and technologies is developed and demonstrated to consolidate five existing program assessment metrics to develop a unified metric that simultaneously considers the relative importance and contribution of each. This allows for a meaningful and objective evaluation and comparison of the National Aeronautics and Space Administration (NASA) Aviation Safety Program (AvSP) advanced aeronautical products and technologies. The resulting decision model is referred to as the Composite Program Assessment Score (CPAS). The CPAS includes the five existing metrics; technical development risk, implementation risk, fatal accident rate reduction, safety benefits and cost, and safety risk reduction, which are each defined and quantified by different sources. The CPAS involves the scaling and combination of these individual metrics. In this paper, two alternative combinatorial modeling approaches to calculate the CPAS are presented. The weighted sum model and an additive value theory model are compared and contrasted. The resulting CPAS metrics allow an overall comparison of all 48 of the NASA AvSP products and technologies. Currently CPAS is based on preliminary weight measures from subject matter experts to reflect the relative importance of each metric. Actual case studies of both linear and non‐linear value functions are demonstrated.     

A risk assessment model for banks

Summary. This paper proposes a model to assess risk for banks. Its main innovation is to incorporate endogenous interaction among banks, where the actual risk an individual bank bears also depends on its interaction with other banks and investors. We develop a two-period general equilibrium model with three active heterogeneous banks, incomplete markets, and endogenous default. The model is calibrated against UK banking data and therefore can be implemented as a risk assessment tool for regulators and central banks. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors.We are grateful to Lea Zicchino, an anonymous referee, seminar participants at the Bank of England, and the third Conference in Research in Economic Theory and Econometrics, Syros, for helpful comments. The views expressed are those of the authors and do not necessarily reflect those of the Bank of England.This revised version was published online in January 2005 with corrections to the Cover date.     

An application of data envelopment analysis to the evaluation of audit risk: a reinterpretation

This paper, which reinterprets previous work by Bradbury and Rouse (2002 ), addresses the risk quantification issue at an intuitive level. The insights provided by such quantification are discussed. Risk factors are associated with the risk-return concept. This allows measuring whether risks taken on are appropriately rewarded. The paper gives a non-technical exposition of DEA and outlines possible applications to accounting and finance. Using data for a large multinational, it shows how DEA analysis can be combined with internal audit procedures. It explains how the results obtained can be used to improve risk management.     

The decision game: a serious game approach to understanding environmental risk management decisions

Abstract

Here we describe the implementation of an experimental research tool called the Decision Game that we used to collect data on household flood risk management decisions. Participants using this tool play an interactive game that involves making household decisions about place of residence and a variety of household expenditures, including spending on flood insurance and private flood risk mitigation. Participants also answer survey questions before and after playing the game; the pre-game survey collected demographic information, and the post-game survey collected information about participant experiences with flooding and flood mitigation. Online and face-to-face participants showed similar engagement with the experiment, and most participants appeared to have made deliberate and considered decisions about risk mitigation. Online study participants had similar responses to those who participated in person, although face-to-face participants seemed slightly more likely to mitigate against risk. Overall, participants in this research were younger, more educated and more likely to rent a home than the average Canadian. Serious games may be useful for augmenting existing data gathering strategies used in understanding environmental decision making, particularly for rare catastrophic events for which stated preference surveys may be less informative. Serious games allow for sharing a mixture of information with study participants, including maps, video clips, text and even immersive 3D experiences, and can be administered online to increase participation levels. Future research will consider longer duration online experiments and more immersive interaction frameworks.     

Towards a concept of genetic risk tolerance: a risk analysis perspective

The starting point of the MindTheRisk project has been to raise socio-political questions about whether lay public’s understanding is satisfied about the genetic information they receive, and to what extent regulators do take this aspect on board when they decide to allow or restrict genetic testing or to develop communications about genetic testing. This article draws on the concepts that have emerged among the risk research community to tackle “risk tolerance’’. It explores the application of those concepts to the sharing and regulating of genetic risk information. We start with a conceptualisation of risk acceptability/tolerability in the genetic context, before turning to concrete hurdles that need to be overcome and questions that need to be answered. Finally, we suggest some direction for policy. The paper is based on an in-depth review supplemented by pilot interviews conducted with the European Medicines Agency, National regulatory agencies, academic and members of a patient organisation, all directly involved in policy.     

Teaching children and youths about risk and risk analysis: what are the goals and the risk analytical foundation?

Abstract

Work has recently been initiated to teach children and youths about risk and risk analysis, highlighting conceptual issues, risk assessment, risk communication, as well as risk management (decision-making). Using this work as a point of departure, this article provides a discussion of the foundation of this type of teaching: what do we wish to obtain, in short- and long-term perspectives, and what is the scientific risk analysis basis? Key pillars for the development of a scientific platform for such teaching is presented and discussed.     

On the analysis of a multi-threshold Markovian risk model

We consider a class of Markovian risk models perturbed by a multiple threshold dividend strategy in which the insurer collects premiums at rate c _i whenever the surplus level resides in the i-th surplus layer, i=1, 2, …,n+1 where n<∞. We derive the Laplace-Stieltjes transform (LST) of the distribution of the time to ruin as well as the discounted joint density of the surplus prior to ruin and the deficit at ruin. By interpreting that the insurer, whose gross premium rate is c, pays dividends continuously at rate d _i =c?c _i whenever the surplus level resides in the i-th surplus layer, we also derive the expected discounted value of total dividend payments made prior to ruin. Our results are obtained via a recursive approach which makes use of an existing connection, linking an insurer's surplus process to an embedded fluid flow process.     

Identification of appropriate risk analysis techniques for railway turnout systems

The construction of railway turnout entails a complex geometry and multi-disciplinary engineering science, which makes it one of the most critical railway infrastructures. As such, these characteristics pose various risks in rail operation. A considerable number of derailment incidents at the turnouts are reported annually worldwide. Not only do these incidents cause operational downtime and financial loss, they also give rise to casualties and sometimes loss of life. One of the fundamental reasons for this may well be the fact that the railway industry pays little attention to the risk elements of railway turnouts. The paper provides an integrated approach of how to deal with the many different risks arising from various sources in railway turnout systems by suitably identifying the multi-disciplinary risk analysis methods for the complex systems. In order to do so, available open literatures are critically analysed by virtue of comparison, industry experiences and deductions. As a result, various qualitative- and quantitative-based risk analysis methods are proposed to fully understand a number of technical phenomena, e.g. ageing, degradation and signalling faults, in a railway turnout system.     

Evaluation of risk communication for rural water supply management: a case study of a coastal area of Bangladesh

Consumption of safe drinking water is an important public health issue. In this study, we considered the risk communication topic of human health concerns related to unsafe water consumption in rural coastal areas of Bangladesh, where potable water is scarce. Our objective was to investigate the level of knowledge that rural residents had concerning safe water consumption and to evaluate the effects of risk communication on knowledge and behavior changes. We considered four rural villages of southwest coastal areas of Bangladesh as sample. This study was based on the results of a questionnaire survey administered before and after risk communication. The pre- and post-survey were conducted during August 2009 and March 2010, respectively. Data were collected from 120 women aged 18–60 years. Two format presentations, with and without water quality information, were used to convey the risk messages. In the present study, indicator bacterial (Escherichia coli) contamination levels in drinking water sources were considered as water quality information since absence of E. coli is the safety margin for the detection of disease-causing organisms. Analysis of the survey data revealed that risk communication can be vital to changes in water consumption knowledge and behavior. Overall general knowledge scores were almost same in the pre-survey for without- (mean score 3.16) and with-information (mean score 3.10) villages. However, after risk communication, there were detectable increases in the mean scores (mean scores, 3.54 and 3.64, respectively, on a 4 point scale) for both groups. Furthermore, risk communication with water quality information appears to be a more effective method of risk communication. Dissemination of risk messages was also higher in with-information villages. Seventy four percent of the participants from with-information villages reported that they had discussed the risk messages with family members and neighbors, compared to 59% of those from without-information villages. The results of this study revealed that age, education, and distance of water sources influence changes in consumption and maintenance behavior. These findings suggest that, in addition to installation of water supply facilities, there is a need to address the low levels of knowledge about safe water consumption in rural coastal communities of Bangladesh. Location specific water quality information may be more useful to convey health risk messages concerning unsafe drinking water consumption.     

Contagion effect on bond portfolio risk measures in a hybrid credit risk model

This paper illustrates how modelling the contagion effect among assets of a given bond portfolio changes the risk perception associated to it. This empirical work is developed in a hybrid credit risk framework that incorporates recovery rate risk. Dependence structures among firms and between external shocks affecting firms together are considered. The presence of correlations among firm leverage ratios and the interrelation between default probabilities and recovery rates produces clusters of defaults with low recovery rates. This has a major impact on standard risk measures such as Value-at-Risk and conditional tail expectation. Consequently, an appropriate measurement of the contagion has a tremendous effect on the capital requirement of many financial institutions.     

Bringing people (back) into risk analysis

Abstract

This paper explores the different ways in which people (i.e. human factors) have been incorporated in extant studies of risk. A preliminary scan of the literature shows that people are not just passive maleficiaries of risk but are also active participants in its inception. People are actors whose biases and behaviors give rise to risk and make an impact on both the degree of its likelihood and the severity of its consequences. Because people themselves undertake risk analysis (either as experts and/or stakeholders), the risk analysis process itself is subject to biases and human error. Therefore, it is argued that human factors must be explicitly brought into risk conceptualization, analysis, and theory development in order to enrich and extend the frontiers of the field. Scholarly contributions by members of the Society for Risk Analysis Australia and New Zealand (SRA-ANZ) investigating the challenges and complexities of incorporating people in risk analysis are introduced in this issue.