Risk Analysis in One Lesson
By Bryan Caplan
Mueller and Stewart’s new piece on “Responsible Counterterrorism Policy” doubles as a great primer on risk analysis:
Terrorism is a hazard to human life, and it should be dealt with in a manner similar to that applied to other hazards–albeit with a appreciation for the fact that terrorism often evokes extraordinary fear and anxiety. However, although allowing emotion to overwhelm sensible analysis is both understandable and common among ordinary people, it is not appropriate for officials charged with–and responsible for–keeping them safe.
Risk analysis is an aid to responsible decisionmaking that has been developed, codified, and applied over the past few decades–or in some respects centuries.
Mueller and Stewart provide invaluable information on relative risks. Terrorism, as all numerate folk know, continues to be a microscopic danger:
Mueller and Stewart also explain one of risk analysis’ simplest outputs: estimates of “cost per life saved”:
When regulators propose a new rule or regulation to enhance safety, they are routinely required to estimate how much it will cost to save a single life under their proposal. Table 1 supplies information about how that calculation comes out for dozens of government rules and regulations in the United States.
Some standard results:
Good to know. But reviewing the basics of risk analysis reminds me of a question I’ve never seen addressed: What about all the utterly ineffective and counter-productive risk regulations? A $1 regulation that, on balance, kills one person has a cost-per-life-saved of infinity. Surely some such regulations exist?