Fear Factor

Overreacting to risks

"Overreaction to risk is frequently found in the environmental realm," according to a study by Cass Sunstein and Richard Zeckhauser in the March issue of the journal Environmental and Resource Economics. We needed a study to show that?

Sunstein, on leave from a post at Harvard Law School, and Zeckhauser, a Harvard political scientist, ran some experiments that showed scary stories cause people to overrate minuscule risks. In one experiment, students indicated they would pay four times more to avoid a one-in-a-million risk after being told an emotional story about the horrors of cancer. The authors suggest that overreaction to the tiny risks posed by nuclear waste, terrorism, the chemical Alar, the toxic waste at Love Canal, anthrax in the mail, and even sharks have produced regulations whose costs far exceed their benefits.

Although Sunstein and Zeckhauser offer an extensive list of failures to rein in regulations, their solution is that wise bureaucrats wielding cost-benefit analyses "should provide a check on regulations that deviate substantially from objective evidence." Sunstein is now serving as President Obama's chief regulatory overseer, which raises the question: How's that working out for you?