Risk perception

In response to the spate of terrorist attacks over the past decade, countries all over the world have dramatically stepped up levels of security to mitigate potential threats. Most notably, the bombing of the twin towers on September 11 2001 made the entire world stop to witness the most tragic and atrocious terrorist attack in history. This was followed up by the bombings in Bali (2002), London (2005), Mumbai (2006), as well as several others which took place on a smaller scale, such as the recent Times Square bomb threat. In light of proliferation of terrorist attacks, I think it is worthwhile for us to investigate the psychological undercurrents that motivate and direct us in dealing with these threats.

The most fundamental concept of economics is that resources are scarce and thus insufficient to meet unlimited human wants. While we face risks everyday that threaten our survival, governments only have so much that they can dedicate towards dealing with illnesses, natural disasters, terrorist attacks, etc. Hence, the allocation of resources is of utmost importance. In deciding on the allocation of resources, the level of risk which is equivalent to probability x consequence is weighed against the costs required to mitigate that risk. If the costs are modest compared to the decrease in risk, then the decision to carry out preventive measures is taken. Nonetheless, statistics tells us that this rational method of decision making is not usually undertaken. For example, colossal amounts of money are spent in deterring terrorist attacks to the exclusion of adequate health care for common ailments such as the flu, which incidentally kill far more Americans than terrorism.

Where exactly do we go wrong in the decision making process? The answer to that is that we err when it comes to evaluating the likelihood of the risk. We are often probability-blind, overestimating the likelihood of rare events and underestimating the likelihood of comparatively more common events. Earthquakes, for example, are least likely to happen right after an earthquake and become increasingly likely to occur as time lapses. Following this, we would expect that earthquake insurance sales are at a minimum right after the earthquake and increase progressively as time passes. Yet, the exact opposite holds true: insurance sales spike right after an earthquake, and fall as time passes (in spite of warnings from scientists).

Research from psychology has shown that we have two systems of thought: System One, which is intuitive, quick, and emotional; and System Two, which is slow, calculating, and rational. System One can be better thought of as the Gut “feel”, while System Two the Head. More often than we realize, and more than we would actually like to admit, many decisions we make are heavily influenced by our Gut. In fact, we are often systematically biased. The two relevant biases that skew our judgment of probability and risk are the (1) availability heuristic, and (2) the affect heuristic.

The availability heuristic is simply a rule of thumb which we use to judge how likely or unlikely an event is to take place based on our ability to recall it. The more easily we are able to recall it to memory, the more likely it must be. However, this is clearly a logical fallacy when we realize that the events that are broadcast in media (and hence the ones we can recall to memory more easily) are usually the ones that are rare and unexpected. For example, people often mistakenly believe that air travel is far more dangerous than car travel. In truth, the odds of being killed in an airplane crash are merely 1 in 135,000 – trivial compared to the 1 in 6,000 odds of being killed in a car crash. In the aftermath of 9/11, many people switched from air travel to car travel. As a result of the direct switch, car crashes went up by 1,595.

The theory of affect heuristic is that our decisions can be influenced by affect, i.e. our state of emotion. An interesting finding involving the affect heuristic is the correlation between benefit and risk perception – a good feeling toward a situation (positive affect) often leads to lower risk perception and higher benefit perception and vice versa. This is logically untrue because there are certainly high risk, high benefit situations (e.g. the introduction of a new prescription drug), and low risk, low benefit situations (e.g. staying home to watch TV). Because terrorism stirs in us feelings of anger, governments devote more resources towards deterring terrorism than actually warranted by its risk.

Mindful awareness of our natural tendencies improves our ability to analyze risk – by identifying the biases involved in our decision making when it comes to dealing with threats, we can move one step closer towards optimal resource allocation and consequently saving more lives.

If the topic of risk perception interests you, do check out Daniel Gardner’s The Science of Fear. It’s excellent, and much of the information I’ve written here came from the book.

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