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.
Thursday, January 15, 2009
Overestimating Low Probability Events
Cass Sunstein, soon to be the next head of OIRA, and Richard Zeckhauser have a new paper entitled, "Overreaction to Fearsome Risks." It is timely. The abstract (SSRN):