The Impact of Risk-Averse Operation on the Likelihood of Extreme Events in a Simple Model of Infrastructure

Abstract

A simple dynamic model of agent operation of an infrastructure system is presented. This system evolves over a long time scale by a daily increase in consumer demand that raises the overall load on the system and an engineering response to failures that involves upgrading of the components. The system is controlled by adjusting the upgrading rate of the components and the replacement time of the components. Two agents operate the system. Their behavior is characterized by their risk-averse and risk-taking attitudes while operating the system, their response to large events, and the effect of learning time on adapting to new conditions. A risk-averse operation causes a reduction in the frequency of failures and in the number of failures per unit time. However, risk aversion brings an increase in the probability of extreme events. © 2009 American Institute of Physics.

Publication
Chaos: An Interdisciplinary Journal of Nonlinear Science