Incorporating risk attitude into comparison of reforestation alternatives

Abstract

By using the approach presented in this paper, the decision‐maker's risk attitude can be ascertained and taken into account in the comparison of reforestation alternatives of a forest stand. Risks which reforestation alternatives include are described using distributions of outcomes. Cardinal utility values of five accumulation points of cumulative distributions of outcomes, calculated without considering risk preferences, are the variables included in a preference function. The parameters of that additive preference function represent the importance of the accumulation points in the choice of the reforestation alternative. They indicate the decision‐maker's attitude towards risk. The parameters are estimated on the basis of pairwise comparisons between the importance of variables, using Saaty's eigenvalue method. Estimation, application, and interpretation of the preference function are simple to carry out, which is important for an approach applied to practical decision‐making. The approach could be applied also, for example, to other forestry decision‐making problems.

Key words:

• decision analysis
• forest planning
• preference modelling
• reforestation
• risk management.