On the consistency of risk acceptance criteria with normative theories for decision-making

E.B. Abrahamsen and T. Aven

Reliability Engineering and System Safety, 2008, vol. 93, issue 12, 1906-1910

Abstract: In evaluation of safety in projects it is common to use risk acceptance criteria to support decision-making. In this paper, we discuss to what extent the risk acceptance criteria is in accordance with the normative theoretical framework of the expected utility theory and the rank-dependent utility theory. We show that the use of risk acceptance criteria may violate the independence axiom of the expected utility theory and the comonotonic independence axiom of the rank-dependent utility theory. Hence the use of risk acceptance criteria is not in general consistent with these theories. The level of inconsistency is highest for the expected utility theory.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reensy:v:93:y:2008:i:12:p:1906-1910

DOI: 10.1016/j.ress.2008.03.021

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