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Measures of Compounding Conservatism in Probabilistic Risk Assessment
Author(s) -
Cullen Alison C.
Publication year - 1994
Publication title -
risk analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.972
H-Index - 130
eISSN - 1539-6924
pISSN - 0272-4332
DOI - 10.1111/j.1539-6924.1994.tb00257.x
Subject(s) - percentile , conservatism , statistics , econometrics , probabilistic logic , probability distribution , risk measure , point estimation , monte carlo method , measure (data warehouse) , mathematics , range (aeronautics) , log normal distribution , computer science , engineering , economics , data mining , portfolio , politics , political science , financial economics , law , aerospace engineering
Concern about the degree of uncertainty and potential conservatism in deterministic point estimates of risk has prompted researchers to turn increasingly to probabilistic methods for risk assessment. With Monte Carlo simulation techniques, distributions of risk reflecting uncertainty and/or variability are generated as an alternative. In this paper the compounding of conservatism (1) between the level associated with point estimate inputs selected from probability distributions and the level associated with the deterministic value of risk calculated using these inputs is explored. Two measures of compounded conservatism are compared and contrasted. The first measure considered, F , is defined as the ratio of the risk value, R d , calculated deterministically as a function of n inputs each at the j th percentile of its probability distribution, and the risk value, R j that falls at the j th percentile of the simulated risk distribution (i.e., F=R d /R j ). The percentile of the simulated risk distribution which corresponds to the deterministic value, R d , serves as a second measure of compounded conservatism. Analytical results for simple products of lognormal distributions are presented. In addition, a numerical treatment of several complex cases is presented using five simulation analyses from the literature to illustrate. Overall, there are cases in which conservatism compounds dramatically for deterministic point estimates of risk constructed from upper percentiles of input parameters, as well as those for which the effect is less notable. The analytical and numerical techniques discussed are intended to help analysts explore the factors that influence the magnitude of compounding conservatism in specific cases.