Decision-making for Civil Infrastructures Incorporating the time-Varying Effect of Risk Preference

Abstract

Life cycle cost (LCC) analysis offered a useful framework to think about the efficiency of infrastructures investment. However, the widely accepted algorithm of the LCC doesn’t account for the decision maker's attitude toward the risk of future consequences. The cumulative prospect theory (CPT) can be used to reveal the decision maker's preference under different risk and uncertainty conditions, and has been applied in literature to some design optimization issues. Nevertheless, previous research didn’t consider the fact that people's risk preference may vary with time, i.e., there is a reasonable tendency that people will be more risk-averse to the near future losses than to the far future losses. Recognizing this, this paper adopts the CPT model in the minimum expected cost analysis, and moreover incorporates the time-varying weighting function included in the CPT model to reflect the possible changing of risk preference toward future events. A seismic retrofit optimization of a dam built in strong earthquake-prone area is used to demonstrate the application of the method, and it is found that considering the time-varying of risk preference leads to a low design level compared with that by the CPT model, but a high design level compared with the traditional LCC.