The Five Neglects: Risks Gone Amiss

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The Five NeglectsRisks Gone Amiss

• Alan Berger, Case Brown, Carolyn Kousky, and
  Richard Zeckhauser
• Presentation to
• New Ideas for Risk Regulation Conference
• June 22-23, 2009

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Elements of Rational Analysis of Risk

• Consideration of probability
• Valuation of potential benefits and losses
• Accurate use of (subjective) probability and
  statistics
• Delineation and evaluation of all available
  alternatives
• 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

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The Corresponding Five Neglects

1. Probability neglect
2. Consequence neglect
3. Statistical neglect
4. Solution neglect
5. External risk neglect

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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 low-probability,
  but high emotion risks
• Example cancer experiments

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Willingness to Pay in Dollars for Elimination of Arsenic Risks Willingness to Pay in Dollars for Elimination of Arsenic Risks Willingness to Pay in Dollars for Elimination of Arsenic Risks
Harvard Law School Results, 2008 Mean (Median) Number of Subjects Harvard Law School Results, 2008 Mean (Median) Number of Subjects 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
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Consequence Neglect

• Most likely for non-salient and difficult to
  imagine risks virgin risks
• Leads us to prepare too little for
  low-probability, high-consequence risks
• Posners example large asteroid

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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
• Gamblers Fallacy
• The Normal Thinking Trap, Fat Tails

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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 DisastersForecasting Economic and Life
Losses. USGS Fact Sheet. Available online at
http//pubs.usgs.gov/fs/natural-disasters/index.ht
ml
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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

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Solution Neglect and Climate Change
Mitigation Adaptation Geoengineering
Problem -
Catastrophe
Mega-Catastrophe

• 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.

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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

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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

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The Pontine Marshes, or Bonifica dell Agro
Pontino, is located approx. 60KM southeast of
Rome and comprises an area 780 sq. km.
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Soon after coming to power in the late 1920s,
Mussolini strove to do what his predecessors
couldnt 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.
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In December 1928, the Italian government approved
a blueprint for the areas 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.
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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
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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

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166. Bingham Canyon Mine (copper). 2000. Near
Salt Lake City, Utah..(From Reclaiming the
American West, Alan Berger)
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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