1. Savage, Ian (1993). An empirical investigation into the effect of psychological perceptions
on the willingness-to-pay to reduce risk. Journal of Risk and Uncertainty 6(1):75-90.
The research investigates the hypothesis that the willingness-to-pay to reduce risks for specific
hazards is related to the psychometric perceptions of that hazard. The motivation for the research
was that economist have empirically found a wide range of "values of life" in studies that analyze
willingness to pay to reduce various different risks. It is possible that some of this variation may
be explained by the observation by psychologists that risk perceptions vary greatly across hazards.
The data for this study was collected as part of a wide-ranging random-dial telephone survey of
1,000 individuals in metropolitan Chicago in 1991. The study investigated attitudes towards four
hazards: aviation accidents, auto accidents, fires in the home, stomach cancer. Opinions were
solicited on a 1-7 scale on the respondent's personal exposure, level of knowledge (referred to as
the "unknown factor" by psychologists), and nervousness ("dread") towards the four hazards, and
how they would divide up $100 between organizations working to reduce the risks of each of these
hazards.
Mean values for the four hazards were:
|
Airlines |
Fires |
Autos |
Cancer |
| Dread |
3.63 |
3.77 |
4.54 |
3.64 |
| Unknown |
3.67 |
2.89 |
2.53 |
4.36 |
| Personal Exposure |
2.58 |
3.21 |
4.33 |
2.87 |
| Willingness to Pay |
$14.61 |
$17.96 |
$20.78 |
$46.66 |
An initial conclusion is that there are certain kinds of hazards which are in a class apart from all
others. These risks engender considerable fear and a high willingness-to-pay to reduce them.
Previous work by the current author have found that nuclear power is one such example. The
current work has found that stomach cancer also fits into this category, especially for older people.
This hazard shares with nuclear power the fact that people feel that the threat is unknown.
Amongst the other three hazards considered a more consistent pattern emerged. Regression
analysis found that hazards which make people become nervous when thinking about them ("dread")
are generally associated with a higher willingness-to-pay to reduce that hazard. However for hazards
about which the risk is considered unknown engender a lower willingness-to-pay. This latter result
need not be regarded as being counter-intuitive. When people think that a hazard is unpredictable
in occurrence, and that scientists do not have a good understanding of the risks, then people would
prefer to spend their income on research into other hazards where there is a greater chance that
preventive measures may be discovered.
The practical implications of the findings are firstly that researchers should not be disappointed at
the wide variation in the valuation of life found in empirical studies. Different hazards will produce
different values of life. Secondly, practitioners should not strive for, and use, a common valuation
of life when making policy decisions regarding priorities for spending to reduce hazards.
View the earlier manuscript version of this paper [22 pages, 155 kb PDF].
A related article in a trade journal applied the findings of this research to the issue of spending on
improved safety on railroads versus highways.
Ian Savage (1993). The price of saving lives. Developing Railways 1993 (A Railway Gazette International Yearbook) 23-24 [5 pages, 24 kb PDF].
2. Savage, Ian (1993). Demographic influences on risk perceptions. Risk Analysis
13(4):413-420.
The survey instrument also collected demographic information on respondents, including data on
age, years of schooling, income (in six bands), sex and race. In a separate paper regression analysis
was used to investigate the effects of these demographic variables on perceptions of personal
exposure, knowledge and nervousness about the four hazards. The principal findings were that
- Dread and perception of personal exposure falls with: being older, having a higher income,
obtaining more schooling, being male, and being black.
- Blacks feel more informed about risks of fires and autos.
- Women are better informed about cancer.
- Schooling and income unrelated to being informed about risks
View the earlier manuscript version of this paper [13 pages, 131 kb PDF].
I would be pleased to answer any detailed questions that you may
have on my papers, and welcome the opportunity to add what I can
to informed formed public debate of these important issues. Please
send an e-mail including your name and postal service address to request a
package of the complete papers. I would also be interested in knowing your professional
connection with risk valuation issues.
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