Conditional Influence Diagrams in Risk Management

This paper introduces conditional influence diagrams into risk management. A contaminated-site cleanup involving two stakeholders is used as a hypothetical case study. The treatment choices must satisfy several conflicting objectives. Any decision made by one stakeholder will affect the choices of the other stakeholder. In building the influence diagrams for each of the stakeholders, the logical relationship of all relevant factors is determined and the values of these factors are analyzed. The influence diagram for each stakeholder is conditional on the options available to the other stakeholder. The influence diagrams are, then, used to evaluate the possible choices of each stakeholder based on decision options of the other stakeholder. These results are analyzed using game theory methods to gain insights useful to risk management and to demonstrate how mutual trust and cooperation can lead to decisions benefiting both stakeholders.