, Volume 6, Issue 1, pp 75-90

An empirical investigation into the effect of psychological perceptions on the willingness-to-pay to reduce risk

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Abstract

A large sample of the residents of metropolitan Chicago were interviewed to investigate whether psychometric attributes by which people view hazards are related to their willingness-to-pay to reduce the hazard. One of the hazards, stomach cancer, is found to engender fear and a high willingness-to-pay. Among the other hazards, willingness-to-pay increases with the dread of the hazard but declines with degree of knowledge people have about the risk they are exposed to. When adjustment is made for perceived probability of occurrence, one can conclude that the implied valuation of life varies across hazards according to psychometric risk perceptions. This result has practical implication for policy makers when making decisions regarding spending to reduce hazards.

I would like to thank the Institute for Modern Communications at Northwestern University for funding the survey work, and the Federal Aviation Administration for funding my research assistant, Sangeeta Kasturia, as part of the Center for Aviation Systems Reliability. I would also like to thank Paul Slovic and Tim McDaniels for helpful discussions, and the editor for invaluable advise on exposition.