Kip Viscusi is probably academia’s most famous risk analysis. His decades of research document democracy’s pervasive tendency to adopt regulations with absurdly high cost-benefit ratios – to spend billions fighting problems that barely exist. But in a recent interview with the Richmond Fed, he refuses to embrace a perfect example of the kind of thing he’s spent his career studying: the War on Terror.

Richmond Fed: Setting aside the issue of the wars in Iraq and Afghanistan, how would you assess the public policy response to the threat of domestic terrorism post-Sept. 11? Are we thinking about the issues in a way that is roughly correct and weighing the costs and benefits in a generally rational way?

Viscusi: …The reason this is tricky is we don’t have very good numbers on what these risks are. We just don’t have a lot of data — unlike, say the risk of being in an automobile accident. We know the probability of that with relative precision. But the estimates of the probability of a terrorist attack or the number of people who are going to die in the coming year are all over the map. So if you can’t assess the likelihood of a terrorist attack or how deadly it is going to be, it is really hard to say how much you should spend to try to prevent it.

I’m frankly puzzled. As John Mueller shows in Overblown, a hundred years of experience with terrorism have shown it to be an extremely small problem in the broad scheme of things. How much longer does Viscusi want to wait before he’ll conclude that the risk is very low?

The disappointment continues. In the next question, Viscusi largely dismisses the mechanism most likely to resolve remaining uncertainty:

RF: What do you think of the proposal to establish a prediction market to help assess the likelihood of a terrorist attack?

Viscusi: One problem with that proposal is that people can affect the probability of that outcome. If you can bet on it and make a lot of money, then people may have an incentive to launch a terrorist attack so they can collect on their bet.

It’s unlike Viscusi to worry about risks without looking at the empirical evidence, but that’s just what he’s doing. It’s a lot easier to profit from terrorism in regular financial markets, but the 9/11 Commission found no evidence of this. Furthermore, a growing academic literature finds that attempted manipulation actually makes market prices more accurate by creating arbitrage opportunities.

Viscusi’s doubts about prediction markets continue:

Also, I’m not sure the information you would get would be refined enough to help you devise a defense strategy. It wouldn’t help you much to know that the probability of an attack has gone up if you don’t know the target. So the markets would need to be very specific, such as the probability of the Holland Tunnel being blown up in the next month.

This answer makes little sense. If your goal is to compare overall costs and overall benefits, an overall terrorism risk market is precisely what you need to consult. In fact, the Holland Tunnel market would be fairly useless for policy purposes because it doesn’t tell you if beefing up Holland Tunnel security would reduce terrorism or simply redirect it.

Viscusi has done more than anyone to raise the level of debate on the subject of risk. If we’d used a Viscusian lens to think about terrorism for the last six years, we would have saved a lot of money, and might even be safer, too. Unfortunately, terrorism is so emotional an issue that Kip Viscusi himself seems too nervous to speak out.