Integrating system dynamics and fuzzy bargaining for quantitative risk allocation in construction projects

Quantitative approaches to risk allocation have been developed to overcome the limitation of qualitative approaches, and to determine how the responsibility of risk should be shared between contracting parties. This paper integrates a system dynamics simulation scheme with fuzzy bargaining game theory for quantitative risk allocation. The behaviour of contracting parties in the quantitative risk allocation negotiation process is modelled as player behaviour in a game. A system dynamics based model is employed to determine the contractor and client costs (players' payoffs) at different percentages of risk allocation. Having determined the player payoffs, the common interval between player acceptable risk allocation percentages is determined. The bargaining process is then performed between two parties accounting for the common interval, and a desirable and equitable percentage of risk allocation is determined.