What is risk? Its analysis as decision theory

It is commonplace to make statements such as ‘life involves risk’, or ‘one cannot exist without facing risk’, or ‘even if one stays in bed, there is still some risk – for example, a meteorite could fall on one, or one could fall out and sustain a fatal injury’, and so on. The Oxford dictionary defines risk as a ‘hazard, chance of … bad consequences, loss, …’; Webster's definition is similar: ‘the chance of injury, damage or loss’ or ‘a dangerous chance’. Two aspects thrust themselves forward: first, chance, and second, the unwanted consequences involved in risk. We have taken pains to emphasize that decision-making involves two aspects: probabilities (chance), and utilities (consequences). Protection of human life, property, and the environment are fundamental objectives in engineering projects. This involves the reduction of risk to an acceptable level. The word ‘safety’ conveys this overall objective.

In Chapter 4, aversion to risk was analysed in some detail. The fundamental idea was incorporated in the utility function. We prompt recollection of the concept by using an anecdote based on a suggestion of a colleague. A person is abducted by a doctor who is also a fanatical decision-theorist.