In a recent paper, Cass Sunstein (with Dick Zeckhauser) writes:
Fearsome risks are those that stimulate strong emotional responses.
Such risks, which usually involve high consequences, tend to have low
probabilities, since life today is no longer nasty, brutish and short.
In the face of a low-probability fearsome risk, people often exaggerate
the benefits of preventive, risk-reducing, or ameliorative measures. In
both personal life and politics, the result is damaging overreactions
to risks. We offer evidence for the phenomenon of probability neglect,
failing to distinguish between high and low-probability risks. Action
bias is a likely result.
Such risks, which usually involve high consequences, tend to have low
probabilities, since life today is no longer nasty, brutish and short.
In the face of a low-probability fearsome risk, people often exaggerate
the benefits of preventive, risk-reducing, or ameliorative measures. In
both personal life and politics, the result is damaging overreactions
to risks. We offer evidence for the phenomenon of probability neglect,
failing to distinguish between high and low-probability risks. Action
bias is a likely result.
Put that man in charge of economic policy, I say. Hat tip goes to Peter Klein. Here is Peter's post on the economics of Stonehenge.
Whereas some risks (like rising mercury in our tuna) are too remote-seeming to gather much fear at all. (As much as opponents say that environmentalists use fear, I’d say the opposite, that too many real environmental threats are too remote, too far from the mind’s eye. They are off the radar.)
Nice that they are talking about this and relating some experimental evidence.
For decades economists have been talking about the hyper-sensitivity to the permit-bad-drug error and the neglect of the withhold-permission-of-good-drug error — the political biases, the self-correction properties of each, and the tremendous costs of suppressing drug development. The authors neglect all this.
They give a few good enviro examples and cite Wildavsky But Is It True?, but otherwise they neglect the abundance of classical-liberal literature about these issues, from Herbert Spencer to literature in recent decades on the precautionary principle — a term that does not arise in the piece. Wildavsky’s Searching for Safety, for example, is all about this.
“Put that man in charge of economic policy” — Perhaps he will override private decisions that are biased toward taking action against minute, dubious risks, and neglect the obvious, stupendous classical-liberal applications of the point — like the FDA.
Wasn’t that man already in charge of Wall Street?
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