Abstract
In this study, we use Cumulative Prospect Theory to propose a risk management process including a risk analysis stage and a risk response stage. According to an individual’s preferential structure, individual’s risk level for the confronted risk can be identified from risk analysis. And based on a response evaluated model, the appropriate response strategy is assessed at the risk response stage. Based on the analyzed individual’s preference toward risk events, and the acquired level of severity for a risk event, the individual can be classified into dead, rational, sensitivity, or saturation of different risk zones. Then, the corresponding strategy, such as acceptance, mitigation, transfer, and avoidance can be decided. Finally, we apply the proposed evaluation model to validate the suggested strategy. When the outcome is uncertain we also proposed a fuzzy risk management process to deal with the imprecise information and achieve a more accurate result. The applicability of the proposed model is evaluated by the A-C court case with both crisp and fuzzy outcomes. The results have shown that the propose method is able to provide more useful and pertinent information than the traditional expected monetary value method.