ABSTRACT
This chapter illustrates the power of algebraic inequalities related to ranking decision alternatives in the presence of deep uncertainty. By using inequalities, a highly counter-intuitive result has been obtained. For suppliers whose fractions of high-reliability components are unknown, purchasing all components from the same supplier maximises the probability that all components will be highly reliable. Despite the total lack of knowledge related to the proportions of high-reliability components characterising the separate batches/suppliers, the use of inequalities reduced the epistemic uncertainty and allowed an appropriate choice to be made, associated with a reduced risk of not selecting high-reliability components.
For different number of suppliers and different numbers of purchased components, each theoretical estimate has been confirmed by a Monte Carlo simulation.
These highly counter-intuitive results fly in the face of the conventional practice always advocating diversification as a risk reduction strategy and expose the dangers of blindly following conventional wisdom in risk reduction.
