Transcript The Five Neglects - Harvard Kennedy School

The Five Neglects:
Risks Gone Amiss
Alan Berger, Case Brown, Carolyn Kousky, and
Richard Zeckhauser
Presentation to
Society for Risk Analysis – New England Chapter
September 17, 2009
Elements of Rational Analysis of Risk
1. Consideration of probability
2. Valuation of potential benefits and losses
3. Accurate use of (subjective) probability and
statistics
4. Delineation and evaluation of all available
alternatives
5. Incorporation of all benefits and costs accruing
to the decision maker
5.a. Incorporation of all benefits and costs
accruing to the decision maker and all external
parties
The Corresponding Five Neglects
1.
2.
3.
4.
5.
Probability neglect
Consequence neglect
Statistical neglect
Solution neglect
External risk neglect
Probability Neglect
 Especially likely for emotionally charged risks
 If the risk stirs strong emotions, WTP to
reduce risk is same no matter the probability
 Can lead to spending too much on lowprobability, but high emotion risks
 Example: cancer experiments
Willingness to Pay in Dollars for Elimination of Arsenic Risks
Harvard Law School Results, 2008
Mean (Median)
[Number of Subjects]
Probability
Unemotional description
Emotional description
1/100,000
241 (100)
[20]
250 (100)
[13]
1/1,000,000
59.21 (25)
[19]
211 (200)
[15]
Consequence Neglect
 Most likely for non-salient and difficult to
imagine risks; virgin risks
 Leads us to prepare too little for lowprobability, high-consequence risks
 Posner’s example: large asteroid
Statistical Neglect
 Biased assessment and updating
– Availability Heuristic
– Too much updating for virgin risks, too little for
experienced risks
 Misunderstanding of probability
– Assuming small samples are representative
– Gambler’s Fallacy
– The Normal Thinking Trap, Fat Tails
Another example: Failure to recognize fat tails
Power Law: p(x)=CxD
log(p(x)) = log(C) + Dlog(x)
Source: Barton, C. and S. Nishenko (2003). Natural Disasters—Forecasting Economic and Life Losses.
USGS Fact Sheet. Available online at: http://pubs.usgs.gov/fs/natural-disasters/index.html
Solution Neglect
 Cannot choose most optimal response if it is
not even considered
 Could be due to:
– Status quo bias
– Political capital accumulated for current solutions
– Limited time and attention of decision makers
 Specific types:
– Natural capital neglect
– Remediation neglect
Solution Neglect and Climate Change
Mitigation
Adaptation
Geoengineering*
+
+
-
Catastrophe
++
++
+
MegaCatastrophe
++
+
+++
Problem
*Geoengineering efforts, even preliminary research on the subject, may
diminish mitigation efforts. But if climate change has a reasonable chance
of being a mega-catastrophe, fervent development efforts are merited.
External Risk Neglect
 Imposing risks on others
 This type of externality is hard to address b/c:
– Changes in risk levels are not visible and may be
difficult to trace to a source
– Created by many and imposed by many
– Those imposing risk in a different jurisdiction
– Intergenerational bargaining not possible
Case Study: Pontine Marshes
 980 sq. km, south of Rome
 Drained with canals, now heavily polluted
 External risk neglect: farmers and industries
polluting water; illegal wells leading to
saltwater intrusion
 Natural capital neglect: Overcome now with
P-REX project to use wetlands to clean water
The Pontine Marshes, or Bonifica dell’ Agro Pontino, is located approx. 60KM southeast of
Rome and comprises an area 780 sq. km.
Soon after coming to power in the late 1920s, Mussolini strove to do what his predecessors couldn’t –
to change the face of Pontine Marshes and thus win prestige for his regime. It would also fulfill his
long-term belief in the “rural vocation of the Italian people.” Il Duce took the Marshes as his pet
project, frequently visiting and propping the landscape as the backdrop for malaria eradication, wheat
farming and small-scale agrarian urbanism.
In December 1928, the Italian government approved a
blueprint for the area’s reclamation, handing
responsibility to the Consorzio dell’ Bonifica di Littoria.
Here you see the beginning of major canal excavation.
By 1935, 2600km of canals were created in the Marshes.
Agricultural Nutrient Plume, Canale Badino-Pontine Marshes. With a lack of resources from national and regional
funding sources, the province is focusing on educating farmers to use best managemet practices, such as not fertilizing
before rainfalls and wet season cycles, and reducing dependence on chemical-based ammonium nitrate fertilizers. Photo
by Alan Berger 2007-08
Case Study: U.S. Mines
 600,000 inactive and abandoned mines in U.S.
 100,000 square miles of mines and waste
 External risk neglect: acidifying water bodies
and polluting them with heavy metals
.
166. Bingham Canyon Mine (copper). 2000. Near Salt Lake City, Utah. (From Reclaiming the American West, Alan Berger)
What Can Help?
 Conscientious assessment of current risk




conditions
Re-education on environmental systems
Risk deliberations with multiple stakeholders
Long-term perspective
Knowledge of and attention to the Five Neglects