Paradoxes of the Safe Society: A Rational Actor Approach to the Reconceptualization of Risk and the Reformation of Risk Regulation
Posted: 28 May 2003
Contemporary attitudes toward risk seem paradoxical. Even as hundreds of billions of dollars are being spent to protect human health by reducing environmental pollution, designing safer products, and eliminating workplace hazards, residents of the United States and other developed nations are increasingly convinced that their environment will harm them, and that the remaining risks of illness and disease are more serious than ever. At the same time, people seem to be craving risk as they never have before.
This article argues that the apparent paradox of risk is the predictable response of rational actors to long-term changes in social safety brought about primarily by radical improvements in medical treatment and care. The article explains the key, policy-relevant aspects of contemporary American attitudes toward and choices about risky activities as precisely what one would expect to observe among rational economic actors confronted by such long-term changes in the causes of human mortality. When people expect to live longer and healthier lives, they have more to lose from the remaining risks of disease and illness. Activities that generate such risks but do not confer any concrete individual benefits, and so are not individually chosen, are viewed simply as "bads," something for regulators to curb or eliminate. Yet, individuals feel far differently about risky activities that do generate concrete, tangible, and immediate individual benefits. Whether hang gliding off a mountain or inhaling a supersized meal, people do not engage in such risky activities because they mistake the magnitude of the risk, or "irrationally" discount future health costs to get present benefits. Rather, they do so because such activities generate direct benefits in consumption, and because both the market and the State have and will continue to generate incentives for new technologies that both reduce the risk of death from such risky behavior and reverse the nonfatal, adverse health consequences. People increasingly choose to engage in risky activities because they rationally know that the health risks of those activities have fallen dramatically and rationally expect continued decreases in risk.
The article develops this argument by first reviewing how the standard economic model of individual choice that is used to derive widely used value of statistical life (VSL) can be extended to take account of how changes in background mortality risk affect willingness to pay for specific risk reduction. A crucial distinction that emerges from this model is between risks raised by activities that individuals perceive as economic goods - as generating consumption benefits - and those that arise from economic bads - activities that cause disutility and which individuals pay to avoid. After demonstrating how this model can explain many of the most prominent cross-sectional and temporal trends in behavior toward risk, I discuss some of its many implications for risk regulation in Part II. Among these is the prediction that the demand for public risk regulation will continually increase, even as its absolute effectiveness decreases. Finally, I argue that however undesirable this may seem, technocratic approaches - the screening of actual individual risk perceptions and preferences by experts of one ilk or another - are not the way to reform risk regulation. So long as risk regulation remains political, individual preferences toward risk will drive risk regulation. The proper approach to regulatory reform is not to discount individual risk perceptions and preferences as the product of various irrationalities and cognitive imperfections, but rather to devolve regulatory authority, to replace uniform federal risk regulation with place-specific approaches that better reflect individual costs and benefits.
Keywords: risk regulation, rationality, cost-benefit analysis
JEL Classification: L51, K32, H230
Suggested Citation: Suggested Citation