Toxics, Toyotas, and Terrorism: The Behavioral Economics, of Fear and Stigma

Abstract:     
Economists have traditionally viewed the behavioral response to risk as continuous and proportional. In contrast, psychologists have often contended that people have little control over their response to risk that is dichotomous, non-proportional, visceral, and fear-based. In extreme cases, this automatic response results in the stigmatization of a product, technology, or choice, which seemingly cannot be eliminated or reduced. In resolving these contrasting perspectives, we review four recent studies that blend behavioral economics and psychology. Together they provide evidence for a dual process decision model for risk that incorporates both reason and fear. They show consumers’ responses to perceived risk are a mix of proportional and dichotomous (safe/unsafe) responses that are relatively more continuous in situations where deliberation is possible and more dichotomous in emotional or stressful circumstances. These findings reconcile mixed results in past studies and, more importantly, the dual process model allows a clear definition of stigma and suggests new ways to mitigate stigma as well as to help manage potentially damaging over-reactions to it.

Number of Pages in PDF File: 45

Keywords: Behavioral economics, dual process, fear, stigma

JEL Classification: D030, D120, D810

Accepted Paper Series