Fear Itself

A one-in-a-million risk may not be imaginary, but it’s pretty damned close to it.

Ronald Bailey
Reason Magazine

Do we pay too much to avoid minuscule risks? Yes, according to a new study by Office of Information and Regulatory Affairs (OIRA) administrator Cass Sunstein and Harvard University economist Richard Zeckhauser. The study, “Overreaction to Fearsome Risks,” published recently in the journal Environmental and Resource Economics, 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.”

Translation: Scared people who don’t understand or care about parsing probabilities end up spending far more than is rational to avoid truly tiny risks. Worse yet, policy makers are often stampeded by frightened constituents into enacting regulations that cost far more than the benefits they offer in risk reduction…

…Ultimately, Sunstein and Zeckhauser suggest that institutional safeguards are the best way to insure against the harmful consequences of public overreaction. They maintain that requiring benefit-cost analysis combined with careful attention to the relevant probabilities “should provide a check on regulations that deviate substantially from objective evidence.” And who will wield benefit-cost analysis as a weapon against public overreaction? Wise bureaucrats, of course. The Office of Information and Regulatory Affairs, they note, “monitors agency action to ensure that it is directed against genuinely significant problems.” And who is in charge of OIRA? None other than the wisest of bureaucrats, Cass Sunstein…

Read the entire article at Reason.com

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