On strategies for risk management and decision making under uncertainty shared across multiple fields

Alexander Gutfraind

Papers from arXiv.org

Abstract: Decision theory recognizes two principal approaches to solving problems under uncertainty: probabilistic models and cognitive heuristics. However, engineers, public planners and decision-makers in other fields seem to employ solution strategies that do not fall into either field, i.e., strategies such as robust design and contingency planning. In addition, identical strategies appear in several fields and disciplines, pointing to an important shared toolkit. The focus of this paper is to develop a systematic understanding of such strategies and develop a framework to better employ them in decision making and risk management. The paper finds more than 110 examples of such strategies and this approach to risk is termed RDOT: Risk-reducing Design and Operations Toolkit. RDOT strategies fall into six broad categories: structural, reactive, formal, adversarial, multi-stage and positive. RDOT strategies provide an efficient response even to radical uncertainty or unknown unknowns that are challenging to address with probabilistic methods. RDOT could be incorporated into decision theory using workflows, multi-objective optimization and multi-attribute utility theory. Overall, RDOT represents an overlooked class of versatile responses to uncertainty. Because RDOT strategies do not require precise estimation or forecasting, they are particularly helpful in decision problems affected by uncertainty and for resource-constrained decision making.

Date: 2023-09, Revised 2025-03
New Economics Papers: this item is included in nep-ger
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