People Overestimate Risk

April 18, 2011

Do we pay too much to avoid minuscule risks?  Yes, according to a new study "Overreaction to Fearsome Risks," published recently in the journal Environmental and Resource Economics.  The study finds that "in the face of a low-probability fearsome risk, people often exaggerate the benefits of preventive, risk-reducing or ameliorative measures."  Consequently, the researchers find that "in both personal life and politics, the result is damaging overreactions to risks," says Ronald Bailey, Reason Magazine's science correspondent.

  • Scared people who do not understand or care about parsing probabilities end up spending far more than is rational to avoid truly tiny risks.
  • Worse yet, policymakers are often stampeded by frightened constituents into enacting regulations that cost far more than the benefits they offer in risk reduction.

The researchers conducted an experiment with Harvard and University of Chicago law students who were asked what they would be willing to pay to avoid a one-in-a-million cancer risk.  They could check off $0, $25, $50, $100, $200, $400, $800 or more.  One set of students was merely asked the question while another was given a highly emotional description of how gruesome cancer can be and then asked.  The unemotional group averaged about $60 to avoid a one-in-a-million risk of cancer, while the emotional group averaged $210, nearly four times more, says Bailey.

  • The authors found "many people will focus, much of the time, on the emotionally perceived severity of the outcome, rather than on its likelihood."
  • "With respect to risks of injury or harm, vivid images and concrete pictures of disaster can 'crowd out' the cognitive activity required to conclude and consider the fact that the probability of disaster is really small."
  • Activating the emotional centers in the amygdala shuts down the operation of the executive functions of the prefrontal cortex.

Source: Ronald Bailey, "Fear Itself," Reason Magazine, April 12, 2011.

For text:

http://reason.com/archives/2011/04/12/fear-itself

 

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