Cambridge Business Association
The Perception of Risk
Book

The Perception of Risk

Paul Slovic
Earthscan, 2000
First Edition: 2000
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Editorial Rating

6

Qualities

  • Innovative

Recommendation

This dense collection of chronologically-ordered essays provides an excellent overview of research into how people think about risk. The traditional assumption governing public policy decisions has been that people are basically rational and assess risk based on logic and facts. But people do not always make rational assessments of risk or decide with cool detachment upon the best risk-adjusted courses of action. Most people lack a sophisticated understanding of probability. Even many scientists who understand statistics fail to act according to their knowledge. This book contains some fascinating material even though the presentation is lengthy, technical, academic and dry. The authors of these collected essays (Paul Slovic is a co-author on each essay) do not pretend to write for a general audience. They are clearly addressing specialists with a professional interest in the details of experiment design, controls and such. Nonetheless, getAbstract believes that the patient, persevering layperson will find that a worthwhile harvest rewards the effort of plowing through this tome.

Summary

The Decision to Take a Risk

Decision theory is supposed to supply guidance on how to make prudent judgments about risk. Decision makers can use a payoff matrix to represent alternative courses of action and their possible results. Since risk only exists in uncertain environments, no single decision will be superior in all circumstances. In fact, the earliest work on decision theory viewed all decisions as “gambles.” Theorists attempting to discover the “best bet” relied on the work of mathematician Daniel Bernoulli who, in 1738, defined the best choice as the one with the greatest expected utility. He set forth an equation that could be used to calculate a decision’s expected utility. Two principles are especially important in the analysis of expected utility:

  • “Transitivity” – One preferring A to B and B to C cannot rationally choose C over A.
  • “Extended sure thing” – One prudently disregards outcomes unaffected by one’s choice.

Applied decision theory has assumed for a long time that decision makers want to make logically consistent decisions and to maximize the expected utility of their choices. But is that true? A substantial...

About the Author

Paul Slovic is president of Decision Research and professor of psychology at the University of Oregon.

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