Probability Neglect Research Articles

Venturing Travelers vs. Home Stayers Under Extreme Risk

ABSTRACT This study explores risk-taking during a pandemic, a severe risk condition similar to terrorism and natural disasters. It examines differences in sociodemographics and psychographics between individuals who traveled during the COVID-19 Pandemic and those who stayed home. Conducted as an online survey in 2022, the study used a randomized experiment. T-tests revealed significant differences in only two sociodemographics and two risk-taking factors of probability neglect and proximity-to-self, but not in personality traits of risk-taking, thrill-seeking, or self-confidence. Travelers were more likely to have young children and higher income while non-travelers scored higher in neglecting the probability of bad events happening to them, potentially because they avoided travel as they perceived a high likelihood of bad events happening while traveling.

Risk‐based thinking for extreme events: What do terrorism and climate change have in common?

AbstractTerrorism and climate change debates are often characterized by worst‐case thinking, cost neglect, probability neglect, and avoidance of the notion of acceptable risk. This is not unexpected when dealing with extreme events. However, it can result in a frightened public, costly policy outcomes, and wasteful expenditures. The paper will describe how risk‐based approaches are well suited to infrastructure decision‐making for extreme events. Risk management concepts will be illustrated with current research of risk‐based assessment of climate adaptation engineering strategies including designing new houses in Australia subject to cyclones and extreme wind events. It will be shown that small improvements to house designs at a one‐off cost of several thousand dollars per house can reduce damage risks by 70%–80% and achieve billions of dollars of net benefit for community resilience—this helps offset some the predicted adverse effects of climate change for a modest cost. The effect of risk perceptions, insurance, and economic incentives is explored for another climate adaption measure. The paper will also highlight that there is much to be optimistic about the future, and in the ability of risk‐based thinking to meet many challenges.

Characteristics of business, pleasure, and VFR segments who travel during risky times

PurposeThis study aims to explore what may have contributed to risk-taking travel behavior during the COVID-19 pandemic and what may be the drivers of satisfaction and intention to travel again. The study compares travelers based on their travel purposes (business, pleasure and visiting friends and relatives [VFR]) and explore the influence of subjective well-being received from their travel activities.Design/methodology/approachData from a structured survey of 323 US residents who traveled during the COVID-19 pandemic were collected on MTurk. Respondents were asked travel behavior questions related to their favorite trips and to rate several multi-item scales measuring the benefits expected and received from their trip, the trip’s contribution to their positive mental and subjective psychological well-being, as well as their satisfaction with the trip and intention to travel in the future. In addition, personality measures focused on risk-taking, thrill-seeking and self-confidence, as well as additional risk-related concepts of optimism bias, probability neglect and proximity to self.FindingsData analysis revealed some differences among respondents who traveled for business, pleasure and VFR purposes. Business travelers were more risk takers and thrill seekers; pleasure travelers achieved more well-being benefits from their favorite trips during the pandemic; however, VFR travelers’ satisfaction and intention to go on similar trips were explained more by the benefits they received from their favorite trips.Originality/valueAlthough several studies addressed consumers’ travel motivation during the COVID-19 pandemic, there is a lack of empirical research comparing the characteristics of travelers based on their travel purposes, as well as their sociodemographics, personality traits and the expected and perceived well-being benefits from traveling.

Are utilities overspending on electric power resilience? How can that be?

Few people doubt that the U.S. will encounter future electric power outages of long durations, disrupting a large number of people and businesses. Most industry observers believe that any improvement in the resilience of the U.S. electric-power network would be cost-beneficial. From an economic perspective, the desirability of improved resilience depends on the marginal benefits and marginal costs. Marginal benefits are especially hard to measure. There is also the question of whether utilities are applying the most cost-effective actions to improve resilience, which is difficult to judge but often ignored by state utility regulators in evaluating utility “resilience” plans. State utility regulators and electric system operators face the burden of answering to the heated public after an extended power outage. They will, not surprisingly, tend to err on the side of excessive resilience, which translates into higher electricity prices. Two probable explanations for this behavior are probability neglect and the precautionary principle. This essay concludes by posing less standard alternatives for policymakers to consider in addressing electric power resilience and the “outage” problem. Two alternatives are exploiting the price mechanism and compensating utility customers for extended power outages.

Interventions for anticipatory traumatic reaction: a pilot study

ABSTRACT Objective This study assessed the effectiveness of interventions intended to mitigate anticipatory traumatic reaction, a form of future-focused distress occurring in response to threat-related media reports and discussions. Method A stratified sample of 512 Australian adults (260 women and 252 men; mean age = 46.80, SD = 16.62) completed measures of anticipatory traumatic reaction, and positive and negative affect. Participants then viewed a stimulus video containing a series of terrorism and crime reports, and were randomly assigned to one of seven conditions. The conditions consisted of six brief online interventions, based on standard psychological treatments for anxiety and mood disorders, and one control condition. Results A cognitive intervention to address probability neglect (p < .001) and a mindfulness intervention (p = .036) both significantly attenuated momentary anticipatory traumatic reaction. Conclusions This research provides information leading to better understanding the phenomenon of anticipatory traumatic reaction and pilot results related to reducing levels of distress for affected individuals.

Can probability neglect bias promote social distancing during the COVID-19 pandemic?

The effectiveness of a stay-at-home order depends on the speed of behavioral changes that are triggered by risk perception. Probability neglect bias, one of the cognitive biases, may lead people to engage in social distancing. However, there is no empirical evidence of the relationship between probability neglect bias and social distancing. This study aims to examine the relationship between individual differences in susceptibility to probability neglect bias and the level of social distancing practice during the early stages of the COVID-19 outbreak in Japan. The level of engagement in social distancing was defined as the narrowing of life-space mobility. We conducted a web-based questionnaire survey among 1000 adults living in central Tokyo, Japan, at the beginning of the pandemic outbreak. Our results show that people had a strong fear of infection in the early pandemic stages. Approximately 60% of our subjects were influenced by probability neglect bias. People susceptible to probability neglect bias engaged in social distancing more intensely than those who were not susceptible after the state of emergency was lifted.

Does the COVID-19 pandemic refute probability neglect?

Cass Sunstein coined the term ‘probability neglect’ to characterize the cognitive bias of disregarding probability when assessing low-probability but high-impact threats. He also related this cognitive bias to terrorism risk, andapplied the concept to the COVID-19 pandemic. In this article, I show that such claims are not justified. I argue that an alternative hypothesis could be that people who downplay the epidemiological threat and do not take precautionary measures suffer from exponential-growth bias. I also show that probability theory, and thus the concept of probability neglect, cannot be easily applied to real-world problems, such as terrorist attacks or pandemics, occurring in a non-ergodic, uncertain environment.

Determinants of Probability Neglect and Risk Attitudes for Disaster Risk: An Online Experimental Study of Flood Insurance Demand among Homeowners.

Little is known about why individuals place either a high or a very low value on mitigating risks of disaster‐type events, like floods. This study uses panel data methods to explore the psychological factors affecting probability neglect of flood risk relevant to the zero end‐point of the probability weighting function in Prospect Theory, and willingness‐to‐pay for flood insurance. In particular, we focus on explanatory variables of anticipatory and anticipated emotions, as well as the threshold of concern. Moreover, results obtained under real and hypothetical incentives are compared in an experiment with high experimental outcomes. Based on our findings, we suggest several policy recommendations to overcome individual decision processes, which may hinder flood protection efforts.

Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.

Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment

The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.

The development of legal probability: shades of guilt

This book has been extensively reviewed since its first appearance in 2001, with a reprint in 2012, so this current (2015) review will be in the context of the new preface and by reordering the sequence of chapters to bring out some less obvious features. Having said that, and having read the book when it first appeared, I can assert that the material in it is stimulating, interesting and informative—but challenging: One has to go to and fro with its many cross-references, and extensive list (one hundred pages) of notes which are themselves an illuminating insight into the depth and breadth of the erudition of Professor Franklin (and his dry, sometimes sardonic, wit). Part, but only part, of the importance of the book, and hence its revival, is the neglect of conjecture and probability in the philosophy of mathematics. For instance, Shapiro (2005) has no mention of them in the index and only fleeting references to Fermat and Pascal, two of the stars in the slowly evolving development of these ideas as Franklin unravels their historical meanings in law, philosophy and science in general. Another part of the importance of the book in my rereading of it was to see how public opinion is changed to accept what was once unacceptable (or vice versa) within increasingly shorter time frames. This is picked up too in Hazareesingh (2015) who in his study of the elements of French thinking from the times of Descartes reflects on the way history is used to structure reasoning, through concepts such as rupture, revolution and progress. Not quite in this context but it is worth noting here that Franklin elaborates in different places on the spectrum of opinion, conjecture, probability and certainty in Descartes’ writings, particularly as influenced by the Scholastics.

How Affect Shapes Risky Choice: Distorted Probability Weighting Versus Probability Neglect

AbstractPeople's choices between prospects with relatively affect‐rich outcomes (e.g., medical side effects) can diverge markedly from their choices between prospects with relatively affect‐poor outcomes (e.g., monetary losses). We investigate the cognitive mechanisms underlying this “affect gap” in risky choice. One possibility is that affect‐rich prospects give rise to more distortion in probability weighting. Another is that they lead to the neglect of probabilities. To pit these two possibilities against each other, we fitted cumulative prospect theory (CPT) to the choices of individual participants, separately for choices between options with affect‐rich outcomes (adverse medical side effects) and options with affect‐poor outcomes (monetary losses); additionally, we tested a simple model of probability neglect, the minimax rule. The results indicated a qualitative difference in cognitive mechanisms between the affect‐rich and affect‐poor problems. Specifically, in affect‐poor problems, the large majority of participants were best described by CPT; in affect‐rich problems, the proportion of participants best described by the minimax rule was substantially higher. The affect gap persisted even when affect‐rich outcomes were supplemented by numerical information, thus providing no support for the thesis that choices in affect‐rich and affect‐poor problems diverge because the information provided in the former is nonnumerical. Our findings suggest that the traditional expectation‐based framework for modeling risky decision making may not readily generalize to affect‐rich choices. Copyright © 2015 John Wiley &amp; Sons, Ltd.

Toward understanding the active SETI debate: Insights from risk communication and perception

Insights from the robust field of risk communication and perception have to date been almost totally absent from the policy debate regarding the relative risks and merits of Active SETI or Messaging to Extraterrestrial Intelligence (METI). For many years, the practice (or proposed practice) of Active SETI has generated a vigorous and sometimes heated policy debate within the scientific community. There have also been some negative reactions in the media toward the activities of those engaged in Active SETI. Risk communication is a scientific approach to communication regarding situations involving potentially sensitive or controversial situations in which there may be high public concern and low public trust. The discipline has found wide acceptance and utility in fields such as public health, industrial regulation and environmental protection. Insights from the scientific field of risk communication (such as omission bias, loss aversion, the availability heuristic, probability neglect, and the general human preference for voluntary over involuntary risks) may help those who have participated in either side of the debate over Active SETI to better understand why the debate has taken on this posture. Principles of risk communication and risk perception may also help those engaged in Active SETI to communicate more effectively with other scientists, the public, with the media, and with policy makers regarding their activities and to better understand and respond to concerns expressed regarding the activity.

Community Resilience and Decision Theory Challenges for Catastrophic Events

Extreme and catastrophic events pose challenges for normative models of risk management decision making. They invite development of new methods and principles to complement existing normative decision and risk analysis. Because such events are rare, it is difficult to learn about them from experience. They can prompt both too little concern before the fact, and too much after. Emotionally charged and vivid outcomes promote probability neglect and distort risk perceptions. Aversion to acting on uncertain probabilities saps precautionary action; moral hazard distorts incentives to take care; imperfect learning and social adaptation (e.g., herd-following, group-think) complicate forecasting and coordination of individual behaviors and undermine prediction, preparation, and insurance of catastrophic events. Such difficulties raise substantial challenges for normative decision theories prescribing how catastrophe risks should be managed. This article summarizes challenges for catastrophic hazards with uncertain or unpredictable frequencies and severities, hard-to-envision and incompletely described decision alternatives and consequences, and individual responses that influence each other. Conceptual models and examples clarify where and why new methods are needed to complement traditional normative decision theories for individuals and groups. For example, prospective and retrospective preferences for risk management alternatives may conflict; procedures for combining individual beliefs or preferences can produce collective decisions that no one favors; and individual choices or behaviors in preparing for possible disasters may have no equilibrium. Recent ideas for building "disaster-resilient" communities can complement traditional normative decision theories, helping to meet the practical need for better ways to manage risks of extreme and catastrophic events.

Terror, security, and money: balancing the risks, benefits, and costs of homeland security

The cumulative increase in expenditures on US domestic homeland security over the decade since 9/11 exceeds one trillion dollars. It is clearly time to examine these massive expenditures applying risk assessment and cost-benefit approaches that have been standard for decades. Thus far, officials do not seem to have done so and have engaged in various forms of probability neglect by focusing on worst case scenarios; adding, rather than multiplying, the probabilities; assessing relative, rather than absolute, risk; and inflating terrorist capacities and the importance of potential terrorist targets. We find that enhanced expenditures have been excessive: to be deemed cost-effective in analyses that substantially bias the consideration toward the opposite conclusion, they would have to deter, prevent, foil, or protect against 1,667 otherwise successful Times-Square type attacks per year, or more than four per day. Although there are emotional and political pressures on the terrorism issue, this does not relieve politicians and bureaucrats of the fundamental responsibility of informing the public of the limited risk that terrorism presents and of seeking to expend funds wisely. Moreover, political concerns may be over-wrought: restrained reaction has often proved to be entirely acceptable politically.

Scale-perception bias in the valuation of environmental risks

The valuation of environmental risks is commonly approached with the utilization of stated preference methods such as contingent valuation. In these methods, money is utilized as the scale that reflects the individual's underlying utility function. However, this scale can vary across individuals due to different perceptions on what are the right or appropriate bounds for Willingness To Pay (WTP). In this article, we test for scale-perception bias and propose a correction method based on the utilization of anchoring vignettes that define different degrees of preference for the nonmarket good. The proposed method is applied to study the commonly found anomaly ‘probability neglect’, which is defined by the insensitivity to the probability levels in the valuation of environmental risks. The results show that probability neglect disappears when WTP responses are corrected for self-perception bias through the utilization of the anchoring vignettes approach.

Overreaction to Fearsome Risks

When risks threaten, cognitive mechanisms bias people toward action or inaction. Fearsome risks are highly available. The availability bias tells us that this leads people to overestimate their frequency. Therefore, they also overreact to curtail the likelihood or consequences of such risks. More generally, fear can paralyze efforts to think clearly about risks. We draw on a range of environmental risks to show the following: (1) Fear leads us to neglect probability of occurrence; (2) As fearsome environmental risks are usually imposed by others (as externalities), indignation stirs excess reaction; (3) We often misperceive or miscalculate such risks. Two experiments demonstrate probability neglect when fearsome risks arise: (a) willingness-to-pay to eliminate the cancer risk from arsenic in water (described in vivid terms) did not vary despite a 10-fold variation in risk; (b) the willingness-to-accept price for a painful but non dangerous electric shock did not vary between a 1 and 100% chance. Possible explanations relate to the role of the amygdala in impairing cognitive brain function. Government and the law, both made by mortals and both responding to public pressures, similarly neglect probabilities for fearsome risks. Examples relating to shark attacks, Love Canal, alar and terrorism are discussed.

How do people value extended warranties? Evidence from two field surveys

Extended warranties are popular but expensive. This paper examines how consumers value these warranties, and asks whether economic considerations alone can account for their popularity. Results from two field surveys show that consumers greatly overestimate both the likelihood and the cost of product breakdown. However, these biases alone do not explain their willingness to buy warranties. In fact, we find evidence of probability neglect, in which warranty purchase decision depends on the magnitude of the possible consequences of not having insurance and not on the probability of having to suffer these consequences. The expected emotional benefits from having a warranty was the best predictor of purchase decision and willingness to pay. We also found that people with higher cognitive skills are less likely to overestimate the economic determinants of warranty value, yet are still highly influenced by emotional considerations when deciding whether to purchase a warranty.

Overreaction to Fearsome Risks

Fearsome risks are those that stimulate strong emotional responses. Such risks, which usually involve high consequences, tend to have low probabilities, since life today is no longer nasty, brutish and short. In the face of a low-probability fearsome risk, people often exaggerate the benefits of preventive, risk-reducing, or ameliorative measures. In both personal life and politics, the result is damaging overreactions to risks. We offer evidence for the phenomenon of probability neglect, failing to distinguish between high and low-probability risks. Action bias is a likely result.

On the Divergent American Reactions to Terrorism and Climate Change

Two of the most important sources of catastrophic risk are terrorism and climate change. The United States has responded aggressively to the risk of terrorism while doing very little about the risk of climate change. For the United States alone, the cost of the Iraq war is now in excess of the anticipated cost of the Kyoto Protocol. The divergence presents a puzzle; it also raises more general questions about both risk perception and the public demand for legislation. The best explanation for the divergence emphasizes bounded rationality. Americans believe that aggressive steps to reduce the risk of terrorism promise to deliver significant benefits in the near future at acceptable cost. By contrast, they believe that aggressive steps to reduce the risk of climate change will not greatly benefit American citizens in the near future - and they are not willing to pay a great deal to reduce that risk. This intuitive form of cost-benefit analysis is much influenced by behavioral factors, including the availability heuristic, probability neglect, outrage, and myopia. All of these contribute, after 9/11, to a willingness to support significant steps to respond to terrorism and to relative indifference to climate change. It follows that Americans are likely to support such steps in response to climate change only if one of two conditions is met: the costs of those steps can be shown to be acceptably low or new information, perhaps including a salient incident, indicates that Americans have much to gain from risk reduction in the relatively near future.