risk - carmen1

7/23/2019 Risk - Carmen1

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RiskRisk


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Class Attitudes TowardsClass Attitudes Towards

RiskRisk


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Class Attitudes TowardsClass Attitudes Towards

RiskRisk


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Risks We Would Like toRisks We Would Like to

EliminateEliminate TerrorismTerrorism

CancerCancer

Heart DiseaseHeart Disease

Plane CrashesPlane Crashes

HomicideHomicide

Motor VehicleMotor Vehicle

AccidentsAccidents Natural DisastersNatural Disasters

FiresFires

Viral InfectionsViral Infections

Bacterial InfectionsBacterial Infections

Elevator AccidentsElevator Accidents

Bicycle AccidentsBicycle Accidents DiaetesDiaetes

Doomsday AsteroidsDoomsday Asteroids

Nuclear !arNuclear !ar Air PollutionAir Pollution


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The Dream of a No-RiskThe Dream of a No-Risk

SocietySociety

The "to#ian DreamThe "to#ian Dream

"sin$ the ri$ht mi% of re$ulation"sin$ the ri$ht mi% of re$ulation

and le$al rules &e can fashion aand le$al rules &e can fashion asociety that is lar$ely devoid of ris'(society that is lar$ely devoid of ris'(

)uestion* Assumin$ this &ere)uestion* Assumin$ this &ere

#ossile+ &hat &ould a ris',free#ossile+ &hat &ould a ris',free&orld loo' li'e-&orld loo' li'e-


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The Fallacy of a No-RiskThe Fallacy of a No-Risk

SocietySociety

.is' often can not //e eliminated///0.is' often can not //e eliminated///0

The elimination of one ris' oftenThe elimination of one ris' oftenincreases other ris's 1There areincreases other ris's 1There are

risk-riskrisk-risk tradeo2s3tradeo2s3

Much ris' is the result of ///Much ris' is the result of ///informed individual choices////informed individual choices//// ris' is not ty#ically the result ofris' is not ty#ically the result of

mar'et failure0mar'et failure0


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The Fallacy of a No-RiskThe Fallacy of a No-Risk

SocietySociety

Im#lications*Im#lications*

.is' #olicy should involve rational.is' #olicy should involve rationalassessments of the costs andassessments of the costs and

ene4ts of alternative a##roachesene4ts of alternative a##roaches

Not all ris's //can or should// eNot all ris's //can or should// e

remedied0remedied0


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Risk-Risk Tradeo!sRisk-Risk Tradeo!s

The Elimination of one ris' oftenThe Elimination of one ris' often

increases other ris's(increases other ris's( ///Direct Tradeo2s///*///Direct Tradeo2s///*

!ithin an individual!ithin an individual

A2ectin$ other individualsA2ectin$ other individuals //Indirect Tradeo2s///*//Indirect Tradeo2s///*

5carcity of .esources 1Ta%es+ 4%ed ud$ets5carcity of .esources 1Ta%es+ 4%ed ud$etsetc3etc3

E%am#les*E%am#les*Drivin$ vs( Flyin$Drivin$ vs( Flyin$

5eatelt la&s5eatelt la&s

6overnment s#endin$ on homeland security6overnment s#endin$ on homeland security

Ta%esTa%es


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Risk "referencesRisk "references

Is .is' Desirale-Is .is' Desirale- Peo#le are Ty#ically //.is',Averse////Peo#le are Ty#ically //.is',Averse////

Peo#le &ill #ay a #remium to reduce ris'Peo#le &ill #ay a #remium to reduce ris' There is a value for ///certainty//////There is a value for ///certainty//////

ut7ut7 Peo#le often have a #reference for thePeo#le often have a #reference for the

/thrill// that accom#anies ris'/thrill// that accom#anies ris'Di2erent attitudes aout di2erent ris'sDi2erent attitudes aout di2erent ris's

E%am#le* 5'iin$ vs( Catchin$ a coldE%am#le* 5'iin$ vs( Catchin$ a cold


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Im#lication*Im#lication*

8ften+ ehavioral ris's that are the8ften+ ehavioral ris's that are the

result of informed choice areresult of informed choice arerational and //should not e///rational and //should not e///

eliminated(eliminated(

The /thrill value// associated &ith aThe /thrill value// associated &ith a

ris' is a ene4t that must eris' is a ene4t that must e

considered &hen ma'in$ #olicyconsidered &hen ma'in$ #olicy

choices0choices0


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5o7 do #eo#le al&ays ma'e ris'5o7 do #eo#le al&ays ma'e ris'

choices consistent &ith theirchoices consistent &ith their

#references-#references-

/N80///N80//

.ememer ////Incom#lete9asymmetric.ememer ////Incom#lete9asymmetricinformation/////0information/////0


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"erce#tions of $nwanted"erce#tions of $nwanted

RiskRisk 5urveys have sho&n that #eo#le75urveys have sho&n that #eo#le7

overestimate small ris's :overestimate small ris's :underestimate lar$e ris's+underestimate lar$e ris's+

overestimate un'no&n 1unfamiliar3 ris'soverestimate un'no&n 1unfamiliar3 ris's

overestimate dread ris'soverestimate dread ris's


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Lar%e and Small RisksLar%e and Small Risks

Peo#le overestimate small ris's :Peo#le overestimate small ris's :

underestimate lar$e ris'sunderestimate lar$e ris's

PerceivedRisk

Actual Risk

45o

line

Perceived Risk


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Lar%e and Small RisksLar%e and Small Risks

Controller choice im#lications for small ris's*Controller choice im#lications for small ris's* ;uries may 4nd ne$li$ence in;uries may 4nd ne$li$ence in too manytoo many casescases

ecause ne$li$ence is ased on a


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Class Risk "erce#tionsClass Risk "erce#tions

!hat #ercent of re$ular smo'ers 1>?!hat #ercent of re$ular smo'ers 1>?

#ac' a day3 that do not @uit &ill die#ac' a day3 that do not @uit &ill die

#rematurely ecause of their hait#rematurely ecause of their hait

1circle the numer closest to your1circle the numer closest to yourestimate3-estimate3-

> G > G

J >J >


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Class Risk "erce#tionsClass Risk "erce#tions


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"u'licity of a Risk"u'licity of a Risk

Pulicity of a ris' increases #ulicPulicity of a ris' increases #ulic

#erce#tion of the ris'#erce#tion of the ris'

PerceivedRisk

Actual Risk

45o line

Perception of risk fromtobacco: 1920

Perception of risk fromtobacco: Today


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(($nknown) Risks$nknown) Risks

"n'no&n ris'"n'no&n ris' Peo#le 'no& a ris' e%ists+ utPeo#le 'no& a ris' e%ists+ ut

1>3 There is /uncertainty// aout ho& lar$e1>3 There is /uncertainty// aout ho& lar$e

the ris' really is+ orthe ris' really is+ or 13 There is /little social e%#erience/// &ith13 There is /little social e%#erience/// &ith

the manifestation of the ris'the manifestation of the ris'

Perce#tion*Perce#tion* //"n'no&n// ris's are ty#ically//"n'no&n// ris's are ty#ically

overestimated 1#erceived as ein$overestimated 1#erceived as ein$ris'ier than the mean scienti4cris'ier than the mean scienti4cestimate3estimate3

E%am#les-E%am#les-


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Dread RisksDread Risks

Dread .is'Dread .is'A ris' that evo'es a feelin$ of dread inA ris' that evo'es a feelin$ of dread in

#eo#le#eo#le

Dread can come from 1>3 the /sco#e// ofDread can come from 1>3 the /sco#e// of

the ris'+ 13 the source//// of the ris' orthe ris'+ 13 the source//// of the ris' or

13 the //conse@uence// of the ris' for13 the //conse@uence// of the ris' for

individualsindividuals Perce#tionPerce#tion

Dread ris's are ty#ically overestimatedDread ris's are ty#ically overestimated

E%am#les-E%am#les-


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The Terrorist ThreatThe Terrorist Threat

!hat do you thin' are the chances!hat do you thin' are the chances

1#roaility3 that you or a family1#roaility3 that you or a family

memer &ill e inKured or 'illed in amemer &ill e inKured or 'illed in a

terrorist attac' over the ne%t tenterrorist attac' over the ne%t ten

years /////// (years /////// (


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The Terrorist ThreatThe Terrorist Threat

Th T i ThTh T i t Th t


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The Terrorist ThreatThe Terrorist ThreatFrom the Colum'us Dis#atch *+,+./From the Colum'us Dis#atch *+,+./


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$nknown and Dread$nknown and Dread

RisksRisksController choice im#lications forController choice im#lications for

un'no&n and dread ris's*un'no&n and dread ris's*;uries may 4nd ne$li$ence in /too;uries may 4nd ne$li$ence in /too

many//// cases ecause ne$li$ence ismany//// cases ecause ne$li$ence isased on a


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Demand for Re%ulationDemand for Re%ulation

R l i f Si il Ri k iR l ti f Si il Ri k i


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Re%ulation of Similar Risks inRe%ulation of Similar Risks in

"ractice"ractice

0ssues in 1easurin% the0ssues in 1easurin% the


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0ssues in 1easurin% the0ssues in 1easurin% the2ene3ts from Risk2ene3ts from Risk

ReductionReduction.ememer*.ememer*

E2iciencyE2iciency //MBLMC// for an action//MBLMC// for an action

Im#ortant issues in estimation includeIm#ortant issues in estimation include

>(>( Time PreferenceTime Preference

(( !ealth E2ects and the Baseline!ealth E2ects and the Baseline(( 5cienti4c Conservatism5cienti4c Conservatism

(( !hat Harms Count-!hat Harms Count-


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,4 Time "reference,4 Time "reference

.ealiation of the fact that all #ersons.ealiation of the fact that all #ersons#refer ene4ts /////// over ene4ts#refer ene4ts /////// over ene4ts//////////(//////////(

E%am#le* A rate of time #reference im#liesE%am#le* A rate of time #reference im#liesthat thethat the present valuepresent valueof > #romised for aof > #romised for a

year from today is &orth (J todayyear from today is &orth (J today

5imilarly+ it has een sho&n that 1all other5imilarly+ it has een sho&n that 1all otherthin$s ein$ e@ual3 #eo#le #refer to ethin$s ein$ e@ual3 #eo#le #refer to e//healthy/// today over ein$ //healthy////healthy/// today over ein$ //healthy//in the future(in the future(

Im#lication* The /timin$// of futureIm#lication* The /timin$// of futureene4ts from ris' reduction matters(ene4ts from ris' reduction matters(


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Calculation of "resentCalculation of "resent

5alue5alue If*If*

there is a ene4t or cost L Othere is a ene4t or cost L O

the rate of time #reference L rthe rate of time #reference L r

the ene4t or cost &ill e realied in tthe ene4t or cost &ill e realied in tyearsyears

the #resent value of O is*the #resent value of O is*

t

XPV= (1+r)


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T me "re erenceme re erence


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T me "re erenceme re erenceE6am#leE6am#le

If an a$ency has a choice et&een the follo&in$ t&oIf an a$ency has a choice et&een the follo&in$ t&ore$s( at the same cost 1> million3+ &hich should itre$s( at the same cost 1> million3+ &hich should itchoose*choose* AAreduces medical e%#enditures from illnesses caused yreduces medical e%#enditures from illnesses caused y

a consumer #rolem y million todaya consumer #rolem y million today

22reduces medical e%#enditures from this #rolem y reduces medical e%#enditures from this #rolem y

million in t&o years( The relevant rate of time #referencemillion in t&o years( The relevant rate of time #referenceis >(is >(

ChooseChooseAA to ma6imi7e net 'ene3tsto ma6imi7e net 'ene3ts

0

2

$35 millionPV(A) = $35 million

(1+0.1)

$40 million $40 millionPV(B) = $33.06 million

(1+0.1) 1.21

=

=


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.4 Wealth E!ects and the.4 Wealth E!ects and the

2aseline2aseline

Health is a //normal//// $oodHealth is a //normal//// $ood Increasin$ &ealthIncreasin$ &ealth increasin$increasin$

////demand/ for health////demand/ for health Increasin$ demand for healthIncreasin$ demand for health

ehavioral chan$es that //decrease// ris'ehavioral chan$es that //decrease// ris'1uy smo'e alarm+ uy 4rst,aid 'it31uy smo'e alarm+ uy 4rst,aid 'it3

In evaluatin$ a re$ulatory #ro$ram itIn evaluatin$ a re$ulatory #ro$ram itis im#ortant to se#arate* theis im#ortant to se#arate* theinde#endent //&ealth/ e2ect from theinde#endent //&ealth/ e2ect from there$ulatory e2ect(re$ulatory e2ect(


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2aseline2aseline

Time

5ie ofProlem

Declinin$Prolem Prior to.e$ulation

P.

T.

E%#ectation ofContinuedDecline !ithout.e$ulation

Decline inProlem!ith.e$ulation


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2aseline2aseline

Time

5ie ofProlem

P.

T.

Bene4t from

.e$ulation

Bene4t from

!ealth E2ect


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84 Scienti3c84 Scienti3c

Conser&atismConser&atismThe #rolem*The #rolem* For many ris's there is no &ay ofFor many ris's there is no &ay of

determinin$ the true ma$nitude ofdeterminin$ the true ma$nitude of

the ris'the ris' 8ften+ the true ma$nitude of the ris'8ften+ the true ma$nitude of the ris'

is eventually discoveredis eventually discovered

Policyma'ers do not &ant to ePolicyma'ers do not &ant to elamed for allo&in$ a lar$e ris' tolamed for allo&in$ a lar$e ris' tocontinue unchec'edcontinue unchec'ed

S i i3 C iS i ti3 C ti


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Scienti3c Conser&atismScienti3c Conser&atismA Political 5olution*A Political 5olution*

5cienti4c Conservatism5cienti4c Conservatism "se


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94 What :arms Count;94 What :arms Count;

!hich is a more serious social #rolem-!hich is a more serious social #rolem-

>(>( Drun' Drivin$Drun' Drivin$

(( Ci$arette 5mo'in$Ci$arette 5mo'in$

Class Beliefs*Class Beliefs* GGBelieve drun' drivin$ is a moreBelieve drun' drivin$ is a more

serious social #rolem than smo'in$(serious social #rolem than smo'in$( Deaths in >Deaths in > >+G Drun' Drivin$>+G Drun' Drivin$ + Toacco,.elated+ Toacco,.elated

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