Beneficial safety decreases
2011 (English)In: Theory and Decision, ISSN 0040-5833, E-ISSN 1573-7187, Vol. 70, no 2, 195-213 p.Article in journal (Refereed) Published
We construct a model of rational choice under risk with biased risk judgement. On its basis, we argue that sometimes, a regulator aiming at maximising social welfare should affect the environment in such a way that it becomes 'less safe' in common perception. More specifically, we introduce a bias into each agent's choice of optimal risk levels: consequently, in certain environments, agents choose a behaviour that realises higher risks than intended. Individuals incur a welfare loss through this bias. We show that by deteriorating the environment, the regulator can motivate individuals to choose behaviour that is less biased, and hence realises risk levels closer to what individuals intended. We formally investigate the conditions under which such a Beneficial Safety Decrease-i.e. a deteriorating intervention that has a positive welfare effect-exists. Finally, we discuss three applications of our model.
Place, publisher, year, edition, pages
2011. Vol. 70, no 2, 195-213 p.
Philosophy of risk, Rational choice, Risk offsetting behaviour, Judgement bias, Safety regulation, Risk policy, Paternalism
IdentifiersURN: urn:nbn:se:kth:diva-30497DOI: 10.1007/s11238-010-9235-2ISI: 000285751200005OAI: oai:DiVA.org:kth-30497DiVA: diva2:404176
QC 201103162011-03-162011-02-282011-03-16Bibliographically approved