Decision Theory and Risk Management in Public Organizations: A Literature Review

Public risk management is becoming accepted and promoted by practitioners, scholars and governments in the public sector. Decision Theory is implicitly contained by the risk management process, since risk management depends on rules derived from general knowledge and precepts of Decision Theory (Vaughan 1997). Once a risk has been past the assessment phase, a decision must be made regarding what –if anything– should be done, thus different approaches to risk management decisions are possible. This article discuss the most classic normative methods for decision making in the context of public entities, elements that could be used to support these types of organizations in the assessment of risk strategies. After studying the difficulties of the rational methodology of decision making and in particular the methods of Cost Benefit Analysis and Multi CriteriaAnalysis, we review the descriptive approaches used to explain decisions in the field of public policy, such as Bounded Rationality, Rules of Thumb, Incrementalism and Mixed Scanning, frameworks which might provide us with further explanations in terms of how local public decision makers formulate choices about risk options.