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Risk evaluation and risk criteria
Risk evaluation involves comparing estimated levels of risk against risk criteria to determine the significance of the risk and make decisions about risk treatment actions.In most activities, risks can be reduced by adding further controls or other treatment options, but typically this increases cost or inconvenience. It is rarely possible to eliminate risks altogether without discontinuing the activity. Sometimes it is desirable to increase risks to secure valued benefits. Risk criteria are intended to guide decisions on these issues.Types of criteria include:
Criteria that define the level of risk that can be accepted in pursuit of objectives, sometimes known as risk appetite, and evaluated by risk/reward analysis.
Criteria that determine whether further controls are needed, such as benefit-cost ratio.
Criteria that decide between different risk management options, such as multiple-criteria decision analysis.The simplest framework for risk criteria is a single level which divides acceptable risks from those that need treatment. This gives attractively simple results but does not reflect the uncertainties involved both in estimating risks and in defining the criteria.
The tolerability of risk framework, developed by the UK Health and Safety Executive, divides risks into three bands:
Unacceptable risks – only permitted in exceptional circumstances.
Tolerable risks – to be kept as low as reasonably practicable (ALARP), taking into account the costs and benefits of further risk reduction.
Broadly acceptable risks – not normally requiring further reduction.The affect heuristic
The "affect heuristic" proposes that judgements and decision-making about risks are guided, either consciously or unconsciously, by the positive and negative feelings associated with them. This can explain why judgements about risks are often inversely correlated with judgements about benefits. Logically, risk and benefit are distinct entities, but it seems that both are linked to an individual’s feeling about a hazard.Human factors
One of the growing areas of focus in risk management is the field of human factors where behavioural and organizational psychology underpin our understanding of risk based decision making. This field considers questions such as "how do we make risk based decisions?", "why are we irrationally more scared of sharks and terrorists than we are of motor vehicles and medications?"
In decision theory, regret (and anticipation of regret) can play a significant part in decision-making, distinct from risk aversion (preferring the status quo in case one becomes worse off).
Framing is a fundamental problem with all forms of risk assessment. In particular, because of bounded rationality (our brains get overloaded, so we take mental shortcuts), the risk of extreme events is discounted because the probability is too low to evaluate intuitively. As an example, one of the leading causes of death is road accidents caused by drunk driving – partly because any given driver frames the problem by largely or totally ignoring the risk of a serious or fatal accident.
For instance, an extremely disturbing event (an attack by hijacking, or moral hazards) may be ignored in analysis despite the fact it has occurred and has a nonzero probability. Or, an event that everyone agrees is inevitable may be ruled out of analysis due to greed or an unwillingness to admit that it is believed to be inevitable. These human tendencies for error and wishful thinking often affect even the most rigorous applications of the scientific method and are a major concern of the philosophy of science.
All decision-making under uncertainty must consider cognitive bias, cultural bias, and notational bias: No group of people assessing risk is immune to "groupthink": acceptance of obviously wrong answers simply because it is socially painful to disagree, where there are conflicts of interest.
Framing involves other information that affects the outcome of a risky decision.  The right prefrontal cortex has been shown to take a more global perspective while greater left prefrontal activity relates to local or focal processing.From the Theory of Leaky Modules McElroy and Seta proposed that they could predictably alter the framing effect by the selective manipulation of regional prefrontal activity with finger tapping or monaural listening. The result was as expected.  Rightward tapping or listening had the effect of narrowing attention such that the frame was ignored.  This is a practical way of manipulating regional cortical activation to affect risky decisions, especially because directed tapping or listening is easily done.
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