Risk Matrix Integrating Risk Attitudes Based on Utility Theory

Abstract

Recent studies indicate that absence of the consideration of risk attitudes of decisionmakers in the risk matrix establishment process has become a major limitation. In order to evaluate risk in a more comprehensive manner, an approach to establish risk matrices that integrates risk attitudes based on utility theory is proposed. There are three main steps within this approach: (1) describing risk attitudes of decisionmakers by utility functions, (2) bridging the gap between utility functions and the risk matrix by utility indifference curves, and (3) discretizing utility indifference curves. A complete risk matrix establishment process based on practical investigations is introduced. This process utilizes decisionmakers' answers to questionnaires to formulate required boundary values for risk matrix establishment and utility functions that effectively quantify their respective risk attitudes.