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By Root 893 0

in an effort to test the relevance of variations in probability to “strong-emotion” decisions, explored people’s willingness to pay (WTP) to avoid electric shocks (Rottenstreich and Hsee, 2001). In the “strong-emotion” setting, participants were asked to imagine taking part in an experiment involving some chance of a “short, painful, but not dangerous electric shock.” In the relatively “low-emotion” setting, they were told that the experiment entailed some chance of a $20 penalty. When asked to say how much they would be willing to pay to avoid participating in the relevant experiment, some participants were told that there was a 1 percent chance of receiving the bad outcome (either the $20 loss or the electric shock); others were told that the chance was 99 percent. The central result was that variations in probability affected those facing the relatively emotion-free injury, namely the $20 penalty, far more than they affected people facing the more emotionally evocative outcome of an electric shock. The electric shock results revealed substantial probability neglect. The median subject was willing to pay $7 to avoid a 1 percent chance, but only $10 to avoid a 99 percent chance—a mere 1.43 times as much despite a 99 times increase in risk. (For the $20 penalty, the corresponding ratio was 18 times as much.)

The researchers’ concluded that when a hazard stirs strong emotions, most people will pay an amount to avoid it that varies little even with extreme differences in the starting probability. What we are stressing here is that when the probability of loss is very low, people will tilt toward excess action. They will favor precautionary steps even if those steps are not justified by any plausible analysis of expected utility.

For either social or personal risks, the implication is clear. When the potential loss is likely to trigger strong emotions, overreaction occurs, as it does when the loss is an economic meltdown, environmental catastrophe, terrorist attack, cancer death, or getting killed in a plane crash. Even if the likelihood of a terrible outcome were extremely low, people would be willing to pay a great deal to avoid it, whether through public or private action. Once a risk is in people’s minds, their willingness to pay to avoid it will often be relatively impervious to significant changes in probability. The significant and often expensive precautions taken against possible sniper attacks by citizens of the Washington D.C. area in October 2002 provide a dramatic example; they attest to the phenomenon of probability neglect in the face of a vivid threat. Indeed, some of these precautions, such as driving great distances to gas stations in Virginia, almost certainly increased mortality risks on balance.3

Arsenic in Drinking Water

To investigate the possibility that values for eliminating low-probability fearsome risks get overblown, we asked law students to state their maximum willingness to pay to reduce levels of arsenic in drinking water. The questions they responded to were drawn from real life. They were based on actual choices confronting the U.S. Environmental Protection Agency, involving cost and benefit information approximating actual figures used by the agency itself.

Participants were randomly sorted into four groups representing the four conditions in a 2x2 experiment, where both the probability and the description of the risk varied. In the first condition, people were asked to state their maximum willingness to pay to eliminate a cancer risk of 1 in 1,000,000. In the second condition, people were asked to state their maximum willingness to pay to eliminate a cancer risk of 1 in 100,000. In the third condition, people were asked the first question, but the cancer was described in vivid terms as “very gruesome and intensely painful, as the cancer eats away at the internal organs of the body.” In the fourth condition, people were asked the second question, but the cancer was described in the same vivid terms as in the third condition. In each condition, participants were asked to check off their