Abstract
In a number of writings, Cass Sunstein has argued that we should use cost-benefit analysis as our primary approach to risk management, because cost-benefit analysis corrects for the cognitive biases that mar our thinking about risk. The paper critically evaluates this ‘cognitive argument for cost-benefit analysis’ and finds it wanting. Once we make distinctions between different cognitive errors and between different aspects of cost-benefit analysis, it becomes apparent that there are really two cognitive arguments, neither of which is successful as arguments for cost-benefit analysis as a whole. One argument shows that the analysis aspect of cost-benefit analysis is warranted because it corrects for false beliefs about the magnitudes of risk and for the neglect of some costs. While this is a sound argument, it does not provide an argument for other aspects of cost-benefit analysis. The second argument purports to show that commensurating and monetizing the values of the effects of regulation is warranted because it corrects for the use of widely diverging values of a statistical life. This argument fails because the use of widely diverging values of a statistical life is not a cognitive error: It is neither precluded by considerations of instrumental rationality, nor by the requirement of treating like cases alike.
Highlights
For1 many of us, a moment’s self-reflection would reveal that we are far from perfect when it comes to reasoning about probabilities, uncertainties and risk
In a number of writings, Cass Sunstein has argued that we should use cost-benefit analysis as our primary approach to risk management, because cost-benefit analysis corrects for the cognitive biases that mar our thinking about risk
One argument shows that the analysis aspect of cost-benefit analysis is warranted because it corrects for false beliefs about the magnitudes of risk and for the neglect of some costs
Summary
A moment’s self-reflection would reveal that we are far from perfect when it comes to reasoning about probabilities, uncertainties and risk. Some have begun to draw explicitly normative conclusions from the psychological findings One such conclusion is that society should regulate putatively risky activities on the basis of cost-benefit analysis, in order to avoid the negative influence of biases on risk regulation. The upshot is that there are two cognitive arguments: One shows that the aim of correcting false beliefs about the magnitude of risks and neglect of the costs of regulations provide a reason for implementing the analysis aspect of cost-benefit analysis, and the other shows that the aim of correcting divergences in the valuation of statistical lives provide a.
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