Should policy be concerned with objective or subjective risks?
AbstractMuch psychological evidence suggests that people’s risk-perceptions are biased. This paper assumes that public policy should intrinsically be concerned with people’s expected welfare, rather than their preferences, which sometimes implies a degree of paternalism. Still, expected welfare depends on both objective and subjective risks. The latter are important through mental suffering associated with the risk, and through secondbest considerations in decentralized markets where people make their own choices between risky alternatives. Optimality rules for both public provision of risk-reducing investments, and for provision of (costly) information to reduce people’s risk-perception bias, are presented.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 93.
Length: 18 pages
Date of creation: 28 Mar 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Subjective risk; risk management; risk regulation; risk-perception; information provision; cost-benefit analysis; paternalism;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-02 (All new papers)
- NEP-CDM-2003-04-02 (Collective Decision-Making)
- NEP-LTV-2003-04-02 (Unemployment, Inequality & Poverty)
- NEP-MIC-2003-04-02 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
- Fredrik Carlsson & Olof Johansson-Stenman & Peter Martinsson, 2004.
"Is Transport Safety More Valuable in the Air?,"
Journal of Risk and Uncertainty,
Springer, vol. 28(2), pages 147-163, 03.
- Rabin, Mathew, 2002.
"A Perspective on Psychology and Economics,"
Department of Economics, Working Paper Series
qt4z78n1r9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Rabin, Matthew, 2002. "A Perspective on Psychology and Economics," Department of Economics, Working Paper Series qt2wr3z049, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Matthew Rabin, 2003. "A Perspective on Psychology and Economics," General Economics and Teaching 0303003, EconWPA.
- Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
- Pollak, Robert A, 1998. "Imagined Risks and Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 88(2), pages 376-80, May.
- Kahneman, Daniel & Ritov, Ilana & Schkade, David A, 1999. "Economic Preferences or Attitude Expressions?: An Analysis of Dollar Responses to Public Issues," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 203-35, December.
- Harsanyi, J.C., 1992.
"Utilities, Preferences and Substantive Goods,"
101, World Institute for Development Economics Research.
- Diamond, Peter, 2002. "Public Finance Theory - Then and Now," Journal of Public Economics, Elsevier, vol. 86(3), pages 311-317, December.
- Yew-Kwang Ng, 1999. "Utility, informed preference, or happiness: Following Harsanyi's argument to its logical conclusion," Social Choice and Welfare, Springer, vol. 16(2), pages 197-216.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).
If references are entirely missing, you can add them using this form.