Accurate risk assessment requires accurate information

I sprained my ankle while walking recently. The pain was uncomfortable and I was annoyed by the subsequent downtime from exercise.

From this experience, I could conclude that my hiking boots were not suitable. If I came to that conclusion, I would buy a new, better pair of hiking boots. One result would be a reduced chance of spraining your ankle and thus suffering pain and downtime from exercise. This result in itself would obviously be useful.

But, of course, the decision to buy better and more expensive hiking boots would not only have a useful result for me, but also other results. The most notable of these other results is that I would have less money to invest or spend on options other than new hiking boots. I can’t say for sure what form such a sacrifice would take – perhaps a slight cut in my savings or an addition to my wine collection with less tasty vintages. Whatever the disadvantages of my purchase of new hiking boots, I chose not to suffer this negative experience, despite the fact that I was fully aware that newer and better hiking boots would lessen my chances of spraining my ankle again.

Is my inactivity in hiking boots irrational? If my only goal in life was not to twist my ankle, the answer would be yes. With no other purpose, such as accumulating big savings or enjoying fine wine, I wouldn’t sacrifice anything by buying new and better hiking boots. But since I have countless goals in addition to reducing the chance of spraining my ankle, my decision not to buy more protective hiking boots is perfectly rational.

If I keep twisting my ankles on future hikes, I will indeed buy newer and better boots. The reason is that increased injury rates tell me something that injury alone doesn’t: that my hiking boots are more likely to are are more inadequate than I am willing to tolerate and should therefore be replaced.

Nothing in the above personal history is striking. I’m sure the main features of this boring story about my hiking boot decision-making apply to the day-to-day decisions you make. You don’t, for example, conclude from one trip on your porch stairs that the stairs are too steep and therefore need to be replaced. You won’t stop dining at your favorite restaurant just because you’ve encountered disappointing food there. You don’t change the route you normally take to work just because one morning on your way to work you get into a single or even more serious accident.

In our personal, everyday life, we understand that accidents happen. No particular setback or accident you’ve experienced is necessarily an indication that you’ve done something wrong. In other words, every adult understands – if only subconsciously – that every possible course of action involves a certain risk. Therefore, the actual manifestation of the risk of a particular course of action is not in itself evidence that the risk was underestimated or that the precautions against the risk were insufficient.

However, this mature understanding of the inevitability of risk and the significance of accidents and accidental misfortunes seems to be lacking in the public sector. Very often a newsworthy disaster is taken as evidence that precautions against such a disaster must be strengthened.

Have there been mass shootings recently? Therefore, we must tighten the restrictions on gun ownership!

Has American access to imported medicines been hindered? Therefore, we should rely less on foreign production of these materials!

Was there a fatal accident during an amusement park ride? Therefore, we must increase the safety of rides in amusement parks!

Have insiders of a large corporation committed fraud? Therefore, we must increase government oversight and regulation of the behavior of corporate managers!

Did someone get caught walking through airport security with a gun? Therefore, we must increase security checks at airports!

Has anyone recently died of food poisoning from canned vegetables bought at the supermarket? Therefore, we must regulate food safety more strictly!

Each of these events is sad. But none of them by itself implies that we “therefore must do something.” Short of a total ban on the activity in question, any degree of precaution regarding that activity leaves some possibility that participation in that activity will lead to an accident, perhaps even a catastrophe. For example, even the most stringent and highly enforced food safety regulations won’t rule out the possibility of someone dying from food poisoning from store-bought foods. It follows that if the government responds to a new case of fatal food poisoning by tightening food safety regulation, the result could be overly restrictive regulation.

Of course, if reducing the likelihood of food poisoning was the only goal of mankind, then every tightening of food safety regulations would make sense. But because we humans have countless other goals besides preventing food poisoning, the steps taken to prevent food poisoning come at a cost. With every step we take, we deny ourselves other valuable goods, services, and experiences. So at some point, an extra helping — economists call it a “marginal increment” — food safety no longer makes sense. The (very real) benefit we will gain from additional food poisoning protection is less than the (very real) benefit of other goods, services, and experiences that we would have to sacrifice to get that extra dose of food poisoning protection.

Unfortunately, politicians react biased to the latest headlines. This reaction is a cheap and effective way to create the appearance of caring and responsiveness. And reporters and headline writers tend to shout out and even exaggerate the news of the latest unfortunate event. Too often, in response, governments take action to introduce or increase protection against any misfortune that is in the headlines today. All too often the result is overprotection against specific risks.

While a number of specific misfortunes might indicate exactly the desirability of taking further precautions against these misfortunes, in almost all cases a single or infrequent misfortune—an misfortune that occurs only once or relatively rarely—does not in itself show that precautions should be needed. be reinforced. Each of us has strong incentives in our personal lives to make these assessments correctly, for if we do not do this, we personally suffer. Politicians and bureaucrats, by contrast, not only do not personally suffer if they impose excessive precautions, they are often praised for it, which is another serious reason for declining the role of government.

Donald J. Boudreau

Donald J. Boudreau

Donald J. Boudreau is Senior Fellow at the American Institute for Economic Research and the F.A. Hayek Advanced Philosophy, Politics, and Economics Program at the Mercatus Center at George Mason University; board member of Mercatus Center; and professor of economics and former chair of the economics department at George Mason University. He is the author of books Essential Hayek, Globalization, Hypocrites and idiotsand his articles appear in publications such as Wall Street Journal, New York Times, US News and World Report as well as numerous scientific journals. He has a blog called Cafe Hayek and a regular column on economics for Pittsburgh Tribune Review. Boudreau received his Ph.D. in economics from Auburn University and his law degree from the University of Virginia.

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