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A Survey of Approaches for Assessing and Managing the Risk of Extremes
Author(s) -
Bier Vicki M.,
Haimes Yacov Y.,
Lambert James H.,
Matalas Nicholas C.,
Zimmerman Rae
Publication year - 1999
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.1539-6924.1999.tb00391.x
Subject(s) - probabilistic logic , probability distribution , extreme value theory , prior probability , bounding overwatch , computer science , range (aeronautics) , entropy (arrow of time) , rare events , econometrics , statistics , mathematics , bayesian probability , artificial intelligence , engineering , physics , quantum mechanics , aerospace engineering
In this paper, we review methods for assessing and managing the risk of extreme events, where “extreme events” are defined to be rare, severe, and outside the normal range of experience of the system in question. First, we discuss several systematic approaches for identifying possible extreme events. We then discuss some issues related to risk assessment of extreme events, including what type of output is needed (e.g., a single probability vs. a probability distribution), and alternatives to the probabilistic approach. Next, we present a number of probabilistic methods. These include : guidelines for eliciting informative probability distributions from experts; maximum entropy distributions; extreme value theory; other approaches for constructing prior distributions (such as reference or noninformative priors); the use of modeling and decomposition to estimate the probability (or distribution) of interest; and bounding methods. Finally, we briefly discuss several approaches for managing the risk of extreme events, and conclude with recommendations and directions for future research.