Much 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.
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Paper provided by Göteborg University, 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: Handle: RePEc:hhs:gunwpe:0093
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden Phone: 031-773 10 00 Web page: http://www.handels.gu.se/econ/ More information through EDIRC
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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