How much would you pay to avoid a “short, painful but not dangerous electric shock”? If the probability of receiving the shock was just 1 per cent, researchers found, then the median answer was $7. But what if the probability of receiving the exact same shock was 99 per cent? How much would people pay to avoid that kind of shock? Despite the ninety-nine-fold increase in probability, people would pay just $3 more.
This experiment highlighted what behavioural economists and psychologists know all too well: people are awfully bad at assessing and responding to risk. After 9/11, millions of Americans chose to drive to their destinations rather than fly. The result was more than a thousand extra road fatalities, a tragic yet unsurprising outcome given the probability of dying in a car accident is 5263 times greater than dying from terrorism.
People’s innate inability to assess risks is on display again with the coronavirus. As things currently stand, the probability of catching Covid-19 in Australia is statistically indistinguishable from zero. But not only are people already taking elaborate precautions regardless, the precautions they are taking — wearing the same facemask for hours on end and avoiding Chinese restaurants — range from pointless to ludicrous.
Read the full article on Inside Story.