Exploring Financial Decision-Making Approaches for Use in Earthquake Risk Decision Processes for Ports

Abstract

One of the main topics in the Georgia Tech/NEES Grand Challenge project “Seismic Risk Mitigation for Port Systems” is the evaluation of seismic risk management approaches for ports. One subtopic of this main topic is the re-evaluation of pertinent financial risk and decision procedures for assessing seismic risk-reduction measures. In light of many criticisms of benefit-cost and least mean total cost methods, previous port seismic risk and decision procedures have benefited from the application of the mean-variance criterion. However, serious objections have been posed to the use of the mean-variance criterion so that exploration of stochastic dominance methods is encouraged. This paper outlines these methods in terms of simplifying nonparametric and upper-order statistics. Focusing on the tails of total cost distributions, this paper shows the value of these methods, but also the value of using almost stochastic dominance when strict stochastic methods fail.