Responsible Precautions for Uncertain Environmental Risks
Journal of Benefit-Cost Analysis, Forthcoming
32 Pages Posted: 13 Jun 2019
Date Written: May 13, 2019
Uncertain future risks pose cognitive and analytical challenges to household decision makers. Risks with uncertain probabilities, coupled with potentially severe outcomes pose problems for decision making and are prone to overreactions. Imprecision in risk estimates generates behavioral distortions such as ambiguity aversion. This article presents new empirical results indicating household overvaluations of uncertain threats posed by several drinking water risks: traces of prescription drugs in drinking water, plastic water bottles with BPA, and the weed killer atrazine in drinking water. Negative reactions reflect responses to ambiguous risks, but policies driven by these concerns may misallocate regulatory resources due to risk conservativism and “no-regrets” responses.
Keywords: risk, ambiguity, discounting, BPA, atrazine, prescription drugs, drinking water risks
JEL Classification: D61, D81, K32, Q51, I18
Suggested Citation: Suggested Citation