Should policy be concerned with objective or subjective risks?
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.
|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
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.:
- Harsanyi, J.C., 1992.
"Utilities, Preferences and Substantive Goods,"
101, World Institute for Development Economics Research.
- Yew-Kwang Ng, 1999. "Utility, informed preference, or happiness: Following Harsanyi's argument to its logical conclusion," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 16(2), pages 197-216.
- Diamond, Peter, 2002. "Public Finance Theory - Then and Now," Journal of Public Economics, Elsevier, vol. 86(3), pages 311-317, December.
- 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.
- 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.
- Matthew Rabin, 2003. "A Perspective on Psychology and Economics," General Economics and Teaching 0303003, EconWPA.
- 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.
- Carlsson, Fredrik & Johansson-Stenman, Olof & Martinsson, Peter, 2002.
"Is Transport Safety More Valuable in the Air?,"
Working Papers in Economics
84, University of Gothenburg, Department of Economics.
- Broome,John, 1999.
"Ethics out of Economics,"
Cambridge University Press, number 9780521644914, December.
- 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.
- Pollak, Robert A, 1998. "Imagined Risks and Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 88(2), pages 376-80, May.
- Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
When requesting a correction, please mention this item's handle: RePEc:hhs:gunwpe:0093. See general information about how to correct material in RePEc.
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.