A Method for Integrating Risk and Attitude Toward Risk into Forest Planning

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Abstract:

The risk associated with decision alternatives and the attitude of the decision-maker toward risk are two important factors that should be considered in forest planning. This paper proposes an operational way of integrating both risk and attitude toward risk into tactical forest planning. Two sources of risk are considered in the proposed planning method: timber price and level of tree growth. A scenario approach is used to generate a distribution of possible outcomes for alternative forest plans. Each outcome is described by a priority index, which is computed from a priority function. The priority function is estimated by Saaty's eigenvalue technique on the basis of pairwise comparisons between the decision criteria selected by the decision-maker. Estimation of attitude toward risk is based on comparison of the importance given to the worst, the expected, and the best outcomes. The optimum plan is sought with a heuristic algorithm. In optimization, different outcomes are converted to priority indices and weighted in a manner that reflects the attitude of the decision-maker toward risk. The case study indicated that level of risk affects the choice of forest plan. In a situation involving risk, the optimum plan may be different for a risk-avoiding, a risk-neutral, and a risk-seeking decision-maker. For. Sci. 42(2):198-205.

Keywords: Decision analysis; forestry decision-making; optimum harvesting; scenario approach; tactical planning

Document Type: Journal Article

Affiliations: Director, Kannus Research Station, The Finnish Forest Research Institute, P.O. Box 44, 69100 Kannus, Finland

Publication date: May 1, 1996

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