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Environmental and Resource Economics

, Volume 48, Issue 3, pp 435–449 | Cite as

Overreaction to Fearsome Risks

  • Cass R. Sunstein
  • Richard Zeckhauser
Article

Abstract

When risks threaten, cognitive mechanisms bias people toward action or inaction. Fearsome risks are highly available. The availability bias tells us that this leads people to overestimate their frequency. Therefore, they also overreact to curtail the likelihood or consequences of such risks. More generally, fear can paralyze efforts to think clearly about risks. We draw on a range of environmental risks to show the following: (1) Fear leads us to neglect probability of occurrence; (2) As fearsome environmental risks are usually imposed by others (as externalities), indignation stirs excess reaction; (3) We often misperceive or miscalculate such risks. Two experiments demonstrate probability neglect when fearsome risks arise: (a) willingness-to-pay to eliminate the cancer risk from arsenic in water (described in vivid terms) did not vary despite a 10-fold variation in risk; (b) the willingness-to-accept price for a painful but non dangerous electric shock did not vary between a 1 and 100% chance. Possible explanations relate to the role of the amygdala in impairing cognitive brain function. Government and the law, both made by mortals and both responding to public pressures, similarly neglect probabilities for fearsome risks. Examples relating to shark attacks, Love Canal, alar and terrorism are discussed.

Keywords

Action bias Availability bias Biased assessment Risk regulation Risk perception 

JEL Classification

D81 Q51 D61 H4 

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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Administrator of the Office of Information and Regulatory AffairsOffice of Management and BudgetWashingtonUSA
  2. 2.Frank P. Ramsey Professor of Political Economy, John F. Kennedy School of GovernmentHarvard UniversityCambridgeUSA

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