2021/03/07 by Michael Krisper, Krisper, Michael · 1 citation
Decision Sciences · Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #Fuzzy Systems and Optimization #Multi-Criteria Decision Making #Risk Management (q-fin.RM) #Statistical and numerical algorithms #q-fin.RM
paper · pdf · doi:10.48550/arxiv.2103.05440
11 pages, 9 figures
arxiv created 2021/03/07 · openalex publication_date 2021/03/07 · arxiv updated 2021/03/10 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper, we discuss various problems in the usage and definition of risk matrices. We give an overview of the general process of risk assessment with risk matrices and ordinal scales. Furthermore, we explain the fallacies in each phase of this process and give hints on which decisions may lead to more problems than others and how to avoid them. Among those 24 discussed problems are ordinal scales, semi-quantitative arithmetics, range compression, risk inversion, ambiguity, and neglection of uncertainty. Finally, we make a case for avoiding risk matrices altogether and instead propose using fully quantitative risk assessment methods.