Nothing to Fear, But Fear Itself
Do we pay too much to avoid minuscule risks? Yes, according to a new study that 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.
What’s even worse than people making decisions about risk, is politicians making decisions about risk. They seen congenitally unable to regulate any risk in a rational way.
An example of this is disease-specific insurance policies for cancer. The costs far outweigh the benefits. Yet people feel better about having coverage.
Good piece by Ron Bailey.
Ditto Neil’s comment.
This is exactly what ObamaCare is going to do. It will force everybody to have insurance that pays for all manner of screening with no deductible or copayment, thus encouraging poele to over spend on small risks.
There is an NCPA study by Tammy Teng on the cost effectiveness of government health and safety regulations. Basically it shows there is no consistency at all in the government’s approach.
So, when people know more about their expected loss from cancer (how “gruesome it is”), they are willing to pay more imaginary money in order to avoid it.