Abstract:
Many economists are convinced that when
individuals are asked to formulate probabilities
they are unlikely to do it correctly (Mark J.
Machina, 1990). However, the same analysts
would likely add that people do have a reasonably
articulated, but biased, internal scale for
risk perceptions. As a result, the extent of bias
in these subjective perceptions has been an important
unresolved issue. For the most part, the
available evidence on these issues stems from
simple laboratory experiments and comparisons
of subjective and expert risk assessments for a
diverse array of activities (Baruch Fischhoff et
al., 1993). Current public policy associated with
many different sources of risk relies on consumer
sovereignty and implicitly trusts that
these biases in risk perception will not be great.
Until recently there has been no opportunity to
test this question outside the setting of laboratory
experiments.
