Home Economic Trends Assessing Risks Accurately Requires Accurate Information – Donald J. Boudreaux

Assessing Risks Accurately Requires Accurate Information – Donald J. Boudreaux

Recently while on a hike I twisted my ankle. The pain was unpleasant, and I was annoyed by the consequent down time from physical exercise.

I could have inferred from this experience that my hiking boots are inadequate. Had I made this inference, I’d have purchased a new, higher-quality pair of hiking boots. One result would have been a reduced probability of twisting my ankle and, thus, suffering pain and downtime from exercising. This result, standing alone, would obviously have been beneficial.

But of course a decision to buy better, more-expensive hiking boots would have had, for me, results in addition to this beneficial one. The most notable of these other results is that I’d have had less money to invest or spend on options other than new hiking boots. I can’t specify just what form such a sacrifice would have taken – a slight reduction in my savings, perhaps, or restocking my wine collection with less-tasty vintages. Whatever would have been the downsides of my buying new hiking boots, I chose not to suffer these negative experiences despite the fact that I was fully aware that new and better hiking boots would have reduced my chances of again twisting my ankle.

Is my inaction on the hiking-boot front irrational? If my only goal in life were to avoid twisting my ankle, the answer would be yes. With no other goal such as accumulating bigger savings or enjoying fine wine, I would have sacrificed nothing by buying new and better hiking boots. But because I have countless goals in addition to reducing the prospect of twisting my ankle, my decision not to buy more-protective hiking boots is perfectly rational.

If on future hikes I keep twisting my ankles, then I will indeed buy new and better boots. The reason is that the increased frequency of injury would tell me what a single injury does not: that my hiking boots likely are more inadequate than I’m willing to tolerate and, thus, they should be replaced.

Nothing in the above personal tale is startling. I’m sure that the essential features of this dull account of my decision-making regarding hiking boots apply to routine decisions that you make. You don’t, for example, conclude from one stumble on your front-porch stairs that the stairs are too steep and, thus, should be replaced. You don’t stop dining at your favorite restaurant just because you encounter there one disappointing meal. You don’t change the route you normally take to drive to work just because one morning on your commute you get into a single fender-bender – or even a more serious wreck.

In our personal, daily lives we understand that accidents happen. No particular mishap or accident that you suffer is necessarily evidence that you’ve been doing things wrongly. Put differently, each adult understands – if only subconsciously – that every possible course of action carries some risk. Therefore, an actual manifestation of a course of action’s risk is not itself proof that the risk had been underestimated or that precautions against the risk were insufficient.

Yet this mature understanding of the inescapability of risk, and of the meaning of accidents and occasional misfortunes, seems lacking in the public sector. Very often, a newsworthy calamity is taken to be proof that precautions against such a calamity must be intensified.

Was there a recent mass shooting? We must therefore tighten restrictions on gun ownership!

Was Americans’ access to imported medical supplies obstructed? We must therefore rely less on foreign production of these supplies!

Was there a fatal accident on an amusement-park ride? We must therefore increase the safety of amusement-park rides!

Did insiders at a big corporation commit fraud? We must therefore strengthen government oversight and regulation of corporate-managers’ behavior!

Was someone caught getting through airport security with a gun? We must therefore increase the severity of security screenings at airports!

Did someone recently die of food poisoning from canned vegetables bought in a supermarket? We must therefore regulate the safety of foods more stringently!

Each of these events is unfortunate. But none of them, standing alone, implies that we “must therefore do something.” Short of completely prohibiting the activity in question, every degree of precaution regarding that activity leaves some chance that engaging in that activity will result in a mishap, perhaps even a catastrophe. For example, even the most stringent and strictly enforced regulation of food safety will not eliminate the chance of someone dying from food poisoning contracted from store-bought foods. It follows that if government responds to a new case of fatal food poisoning by intensifying its regulation of food safety, the result might be regulation that’s excessively restrictive.

Of course, if reducing the prospects of food poisoning were humanity’s only goal, then each and every increase in the stringency of food-safety regulation would be worthwhile. But because we humans have countless goals other than to avoid food poisoning, steps taken to avoid such poisoning are costly. With each such step that we take, we deny ourselves other valuable goods, services, and experiences. At some point, then, an extra dollop of – economists call it “a marginal increment of” – food safety is no longer worthwhile. The (very real) benefit we would get from the extra protection from food poisoning is less than the (very real) benefits from other goods, services, and experiences that we would have to sacrifice to obtain this extra dollop of protection from food poisoning.

Unfortunately, politicians are biased toward reacting to the latest headlines. Reacting in this manner is a cheap and flashy way of creating the appearance of being caring and responsive. And reporters and headline writers are biased toward blaring out, and even exaggerating, news of the latest unfortunate event. Too often, in response, governments spring into action to implement or to strengthen protections against whatever misfortune is blared in today’s headlines. The too-frequent result is excessive protection against particular risks.

While a series of particular misfortunes might accurately reveal the desirability of taking further precautions against those misfortunes, in almost all cases a single or infrequent misfortune – a misfortune that occurs only once or only relatively rarely – does not, standing alone, reveal that precautions should be intensified. Each of us in our private lives has strong incentives to make these assessments correctly, for if we don’t, we personally suffer. Politicians and bureaucrats, in contrast, not only do not personally suffer if they impose excessive precautions, they are often lauded for doing so – which is yet another good reason for reducing the role of government.