A general methodology for decision making under uncertainty with a risk management application

The authors provide a general formulation for decision making under uncertainty. They discuss the role of the decision maker´s level of optimism in the selection of an alternative. It is shown that the ordered weighted averaging (OWA) operators play a central role in aggregating the payoffs to determine a value associated with each alternative. It is also shown that the Dempster-Shafer belief structure may provide a suitable framework for representing the information a decision maker has regarding the events. Using OWA operators, a methodology is provided for selecting the optimal alternative in decision making under uncertainty in which the knowledge about the uncertainty can be modeled by the belief structure. The methodology is applied to a case involving risk management at one of the USA´s largest banks