Using Risk Aversion in DecisionPro

By now you might be starting to think that risk aversion is more trouble than it is worth. Actually, it is quite easy to use in DecisionPro.

First, construct your decision tree as usual. Next, point to Decision Tree in the Tools menu and click Set Risk Aversion (Utility) and follow the instructions in the dialog box.

After you have selected a level of risk aversion that seems to match your appetite for risk based on the sample problem in the dialog box, click OK to return to your decision tree. Look at the event nodes in your tree to see if the certainty equivalents calculated for each node make sense to you. If they don't, go back to the Risk Aversion tool and make fine adjustments.

Once you have set the risk aversion for a model, you don't need to adjust it as you modify your model. DecisionPro will use the level of risk aversion you have set as a guide and apply a consistent level of aversion to all parts of your tree.

Risk aversion is implemented entirely in the emv primitive and only affects calculation involving that primitive.

Note: Turn risk aversion off before using the Risk Profile and Value of Perfect Information tools. The risk aversion functionality will sometimes interfere with calculations performed by these tools and can cause results to be skewed.