Pubdate: Mon, 09 Nov 2015
Source: Independent  (UK)
Column: Economic View
Copyright: 2015 Independent Newspapers (UK) Ltd.
Contact:  http://www.independent.co.uk/
Details: http://www.mapinc.org/media/209
Author: Ben Chu

SOMETIMES WE'RE ALL BETTER OFF WHEN PEOPLE IGNORE RISKS

Six years ago the Government's chief drugs adviser, David Nutt, 
alerted us to a frightening addiction called "equasy".

Equasy, as Nutt described it, was a pursuit that released adrenaline 
and pleasurable endorphins into the brain. It was also extremely 
dangerous, often fatal. Nutt reckoned that around one in every 350 
usages of equasy resulted in acute physical harm. Worse still, this 
was an addiction that had in its grip tens of thousands of people 
across Britain, including small children.

Equasy was horse-riding. Nutt's point was that, objectively speaking, 
riding a horse is a far more dangerous hobby than taking little MDMA 
pills, or ecstasy, in nightclubs. While he calculated that 1 in 350 
horseriding episodes resulted in harm, that was only the case with 1 
in 10,000 episodes of ecstasy use. And yet ecstasy was a Class A 
banned drug and the object of great waves of concern from the media 
and politicians, while horse-riding was not.

Nutt's reward for this provocative comparison was to be sacked as 
chief adviser by the then Home Secretary, Alan Johnson. Nutt had 
misunderstood his brief. His job as drugs adviser was to tell 
ministers how dangerous ecstasy and other banned drugs were, not how 
comparatively safe they were.

Yet even more depressing than Johnson's intolerant response was the 
fact that it probably reflected majority public opinion. Many of us 
have an objection to thinking about risk and harm in a scientifically 
neutral way. We find it inappropriate, even offensive, to compare two 
activities such as popping Es and ridding ponies, where one is widely 
seen as inherently sinful while the other is regarded as wholesome. 
These subjective moral spectacles are one of the reasons people tend 
to be rather bad at evaluating risk.

Smoking today fits well with this moral view of risky behaviour. 
Smoking is widely seen as a filthy habit. We don't have a problem 
when doctors warn of the grave health risks from cigarettes. But 
eating a bacon sandwich? Not so much. That was why, when the World 
Health Organisation released a report last month suggesting that 
consuming processed meats increases the risk of developing colorectal 
cancer by 18 per cent, many raised an eyebrow. Some even inquired 
what the absolute risk was.

A person's risk of contracting this form of cancer over a lifetime, 
whether they eat processed meats or not, is around 6 in 100. This is 
known as the base rate. A person who regularly consumes processed 
meats has a 7 in 100 risk. Not such a dramatic jump as that 18 per 
cent headline figure suggested. That's really how we should evaluate 
all health risks, by asking to be told the risk base rates.

But we seldom do. Moral spectacles are a major reason why we don't. 
But they're not the only psychological explanation. The US economist 
Steven Levitt, author of Freakonomics, has pointed out that an 
American child is around 100 times more likely to drown in a swimming 
pool than be accidentally shot by a parent's gun. Americans are 
generally extremely careful about locking up their firearms to keep 
them out of the hands of children, but they're much more cavalier 
about ensuring that the door to their backyard swimming pool is shut 
at all times.

So what's going on here? The answer is fear of regret. When we 
evaluate risks we're often not thinking of the objective likelihood 
of a bad thing happening, but how terrible they will feel if it does 
happen and they did not take steps to prevent it. A child being 
accidentally shot is a more discomforting thought than a child 
accidentally falling into a pool and drowning  and people react accordingly.

The media plays a role in exacerbating these psychological biases. 
Plane crashes get blanket coverage; car crashes do not. Cyclist 
deaths in London get considerable media attention. The base rates for 
these transport fatalities are seldom reported. When people die of 
alcohol poisoning, it doesn't make the evening news. But every single 
death from ecstasy makes headlines, generating plentiful debate. 
Sometimes this kind of coverage creates a self-reinforcing 
"availability cascade", massively distorting public impressions of 
the relative riskiness of activities.

There seems to be a human urge to want to believe that things happen 
for a reason. Experiments by the psychologist Icek Ajzen suggest that 
if base rates are subtly presented to people as somehow "causal" they 
are much more likely to be taken on board by those people when they 
estimate probabilities. The mind can deal with plausible stories much 
more easily than arbitrary statistical facts.

This isn't all a negative story. In some instances it's rather 
civilised that we neglect base rates. Think of when it is suggested 
that the authorities resort to racial profiling to detect criminals. 
Many of us baulk at denying each person's individuality, at 
stereotyping whole classes of people, even if it might make our 
police and intelligence services marginally more efficient.

What does any of this have to do with economics? Well, the neglect of 
statistical base rates explains why many people buy insurance 
policies that are priced well in excess of their statistical 
"expected values", thus creating an enduring source of profits for 
insurance companies.

It also has implications for the magic dust that is responsibility 
for our prosperity: entrepreneurship. It's difficult to estimate the 
base rates of success for people who start their own business 
ventures. The data is lacking. But there are good reasons for 
thinking they are low. Failure is overwhelmingly more likely than 
success. Yet we don't particularly want entrepreneurs to ponder the 
odds of success. If they focused on the high risk of failure they 
might not take the risk and stick with something safer. If the great 
entrepreneurs of history from Guglielmo Marconi to Bill Gates  had 
made these calculations, we might all be the worse off for it. We 
want entrepreneurs to have a head full of self-belief, not base rates.

And it's not just the successful entrepreneurs who contribute to our 
prosperity. "Someone who did not find something is providing others 
with knowledge, the best knowledge, that of absence (what does not 
work), yet he gets little or no credit for it," says the philosopher 
and mathematician Nicholas Nassim Taleb in his book Antifragile. 
Taleb goes on to suggest that societies should honour all 
entrepreneurs, successful and unsuccessful alike, in the same way we 
do all soldiers, whether they're heroes or not. Yet to do so, our 
risk morality would need to be inverted. We would need to learn to 
sometimes praise people for bad outcomes, not blame them.
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MAP posted-by: Jay Bergstrom