In Judging Risk, Our Fears Are Often Misplaced

Lerner found that anger and fear systematically bias people's risk estimates in opposite directions. Anger causes people to underestimate risks, which may be why drivers in the grip of road rage confidently attempt perilous maneuvers that place themselves and others in danger. By contrast, people who are afraid overestimate risks.

...people worry a lot more than they should about the kind of scenarios depicted in Hollywood thrillers and the nightly news, and worry a lot less than they should about 'mundane' risks that do not make for gripping entertainment but kill a lot more Americans every year.

Malevolence or negligence on the part of others also seems to trigger our warning systems much more easily than the risks we pose to ourselves by smoking or leading sedentary lives. The number of Americans who have committed suicide in the past six years is more than 50 times the number of Americans killed by al-Qaeda operatives on Sept 11, 2001.

'The risk for any given person for suicide, particularly for middle-aged older white males, is dramatically higher than the risk of being mugged or being in a terrorist attack,' Lerner said.

Perceptions of Risk

• People exaggerate spectacular but rare risks and downplay common risks.
• People have trouble estimating risks for anything not exactly like their normal situation.
• Personified risks are perceived to be greater than anonymous risks.
• People underestimate risks they willingly take and overestimate risks in situations they can’t control.
• People overestimate risks that are being talked about and remain an object of public scrutiny.

Boredom & risk

On boredom and risk:

For most people, boredom is a passing, nearly trivial feeling that lifts as soon as your number is called, a task is completed or a lecture ends. But boredom has a darker side: Easily bored people are at higher risk for depression, anxiety, drug addiction, alcoholism, compulsive gambling, eating disorders, hostility, anger, poor social skills, bad grades and low work performance.

I'm dying to use the word alexithymia (students who scored high on scales of alexithymia—difficulty in describing or identifying feelings, distinguishing between bodily sensations and feelings, and an inhibited inner emotional and fantasy life—also tended to be bored).

In fact, direct manipulation of attention can lead to boredom. In a classic experiment from 1989, James Laird at Clark University in Worcester, Mass., found that low-level distraction—by way of a quiet television in the next room—caused participants to find a reading task "boring."

These results support the idea that we label tasks as boring when they require a great deal of focused effort to hold our attention. In the 1970s, psychologist Mihaly Csikszentmihalyi, who is now at the Claremont Graduate University in Claremont, Calif., coined the term "flow psychology"—the idea that great absorption, focus and enjoyment of work results from a balance between our skills and the challenge of the tasks we face.

Both tasks that are too dull, such as factory work, or too complicated, such as doing taxes, feel tedious. Of course we all differ in our ability to focus, see the beauty and complexity of our surroundings, or ascribe meaning to our actions. We also differ in our interest or knowledge of an area. "You might love something that I would consider incredibly mundane," Vodanovich says. "I have some good friends who love classical music and I cannot stand it."

Compare this with the following: Myron Scholes, winner of the Nobel Prize in economics, and a principal of the hedge fund Long Term Capital Management (LTCM), which went belly-up in the late 1990s.

He says he feels like the woman in the local paper who, whatever she does, will always be remembered for one thing: "Mrs. Jones, who was falsely accused of the ax murder of her husband in 1944, recently had a garden party for 10 of her friends."

Anyway, what he has to say about risk:

A better description would be a lifelong student of risk, and why we humans need risk, how we manage it and why we'd be unhappy without it.

Start with the commonplace that risk is one side of a coin whose other side is reward. "We all have a taste for it," he says. "In life, it would be kind of boring if there was no risk. On the other hand if there's too much risk, too much uncertainty, too much chaos, we can't handle it either. We simultaneously want order and disorder, simultaneously want risk and quiescence."

Our conversation, at his suburban New York headquarters, takes place just before the recent market gyrations, but his analysis has a greater ring of verisimilitude than many that filled the media this week. "Right now," according to Mr. Scholes, "we're quiet because the lion is tame, and maybe it's the central bankers of the world who are keeping it tame." And thus, "Individuals will say, oh, things are now quiescent and will be forever, and they'll take more risk again."

So is it the case that even people who are temporarily bored will engage in risk-seeking behavior?

Dollar Cost Averaging vs.Lump-Sum Investing

Let’s say you have $100,000 to invest, and you want to achieve a portfolio of 90% stocks (modeled as the S&P 500) and 10% bonds (T-Bills). But that sounds risky to you. You decide to instead invest gradually over 10 years, every month putting a little bit more in, until you finally put $90,000 into stocks.

But what if you instead put everything at once into 50% stocks and 50% bonds, and kept those 50/50 proportions for the entire 10 years instead? That would also reduce your risk. You may be surprised to find out that historically the 50/50 rebalanced portfolio actually had the same amount of volatility than the 90/10 dollar cost averaged portfolio, but with a higher average return (8.37% vs. 8.05%).

What about tobacco and alcohol?

Mike Males claims

...teenagers remain the least part of America's burgeoning drug abuse crisis. Today, after 20 years, hundreds of billions of dollars, and millions of arrests and imprisonments in the war on drugs, America's rate of drug-related deaths, hospital emergencies, crime and social ills stand at record highs.

According to the Centers for Disease Control and Prevention, the number of Americans dying from the abuse of illegal drugs has leaped by 400 percent in the last two decades, reaching a record 28,000 in 2004. The F.B.I. reported that drug arrests reached an all-time high of 1.8 million in 2005. The Drug Abuse Warning Network, a federal agency that compiles statistics on hospital emergency cases caused by illicit drug abuse, says that number rose to 940,000 in 2004 -- a huge increase over the last quarter century.

Why are so few Americans aware of these troubling trends? One reason is that today's drug abusers are simply the ''wrong'' group. As David Musto, a psychiatry professor at Yale and historian of drug abuse, points out, wars on drugs have traditionally depended on ''linkage between a drug and a feared or rejected group within society.'' Today, however, the fastest-growing population of drug abusers is white, middle-aged Americans. This is a powerful mainstream constituency, and unlike with teenagers or urban minorities, it is hard for the government or the news media to present these drug users as a grave threat to the nation.

Among Americans in their 40s and 50s, deaths from illicit-drug overdoses have risen by 800 percent since 1980, including 300 percent in the last decade. In 2004, American hospital emergency rooms treated 400,000 patients between the ages 35 and 64 for abusing heroin, cocaine, methamphetamine, marijuana, hallucinogens and ''club drugs'' like ecstasy.

Equally surprising, graying baby boomers have become America's fastest-growing crime scourge. The F.B.I. reports that last year the number of Americans over the age of 40 arrested for violent and property felonies rose to 420,000, up from 170,000 in 1980. Arrests for drug offenses among those over 40 rose to 360,000 last year, up from 22,000 in 1980. The Bureau of Justice Statistics found that 440,000 Americans ages 40 and older were incarcerated in 2005, triple the number in 1990.

...

But, some may say, don't teenage drug use rates predict future drug problems? To the contrary: 30 years of experience shows that fluctuations in the percentage of youths who report using drugs on surveys has almost nothing to do with the harm that drug abuse causes (addiction, disease, injury, death, crime, family and community distress), either in adolescence or later in life.

...

In 1972, the University of Michigan researchers who carry out Monitoring the Future found that just 22 percent of high school seniors had ever used illegal drugs, compared to 48 percent of the class of 2005. Yet as that generation has aged, it has been afflicted by drug abuse and its related ills -- overdoses, hospitalizations, drug-related crime -- at far higher rates than those experienced by later generations at the same ages.

It's time to end the obsession with hyping teenage drug use. The meaningless surveys that policy makers now rely on should be replaced with a comprehensive ''drug abuse index'' that pulls together largely ignored data on drug-related deaths, hospital emergencies, crime, diseases and similar practical measures.

A good model is the California Department of Alcohol and Drug Programs' fledgling drug abuse index, which I helped compile and which aims to pinpoint which populations and areas are most harmed by drugs, both legal and illicit.

Few experts would have suspected that the biggest contributors to California's drug abuse, death and injury toll are educated, middle-aged women living in the Central Valley and rural areas, while the fastest-declining, lowest-risk populations are urban black and Latino teenagers. Yet the index found exactly that. These are the sorts of trends we need to understand if we are to design effective policies.

So that's for drugs. It's nice to hear teens are doing well, and interesting to find that baby-boomers are causing trouble. But there are other social problems.
But the Journal of the American Medical Association, Jan. 19, 2005, Vol. 293, No. 3, p. 298 reported on the leading causes of death in the United States:

• Tobacco (435,000 deaths; 18.1% of total US deaths)
• Poor diet and physical inactivity (400,000 deaths; 16.6%)
• Alcohol consumption (85,000 deaths; 3.5%)
  (Note: 16,653 deaths from alcohol-related vehicle crashes are included in both Alcohol consumption above and Motor vehicle crashes below.)
  
• Microbial agents (75,000)
• Toxic agents (55,000)
• Motor vehicle crashes (43,000)(see Note above)
• Incidents involving firearms (29,000)
• Sexual behaviors (STDs, hepatitis B and C, and cervical cancer) (20,000)
• Illicit use of drugs (17,000)

Update
Here's another rendition:

Health insurance is about managing risk, not prepayment of care

So says Michael F. Cannon, linking to Jay of Colorado Health Insurance Insider:

What if you had supermarket insurance and 20% was the most you would pay for any item you bought? Would you be as choosy about what you buy as you are now? Would you care as much about price? If you didn’t care as much about price, would the supermarket have an incentive to keep prices down?

Today, most people still expect their employer to pay for their insurance. They see it as an “extra” benefit. In reality, in a state like Colorado the policy will cost the employer more than 2x what a similar individual/family health insurance plan will cost, just because they aren’t underwritten. I would rather have a bigger salary and go shop for my own health insurance with the extra money.

Employer sponsored health insurance plans usually have low copays and low deductibles. And a lot of people still prefer to stay away from plans that don’t have copays or have a high deductible. They think that “insured” means “free”.

His solution is health savings accounts, but even before we get there, many Americans will insist that health care is a right that someone else should pay for.

Risk again

Over 40,000 people die a year in motor vehicle accidents, and we're worried about a few deaths from spinach.

Oooh! I'm scared I'm going to drown in the bathtub!

As John Tierney writes,

John Mueller has an awkward question for those of us in the terrorism industry, which is his term for the journalists, politicians, bureaucrats and assorted "risk entrepreneurs" who have alarmed America about terrorism.

John Mueller wonders Is There Still a Terrorist Threat?

...it is worth remembering that the total number of people killed since 9/11 by al Qaeda or al Qaeda­like operatives outside of Afghanistan and Iraq is not much higher than the number who drown in bathtubs in the United States in a single year, and that the lifetime chance of an American being killed by international terrorism is about one in 80,000 -- about the same chance of being killed by a comet or a meteor. Even if there were a 9/11-scale attack every three months for the next five years, the likelihood that an individual American would number among the dead would be two hundredths of a percent (or one in 5,000).

Although it remains heretical to say so, the evidence so far suggests that fears of the omnipotent terrorist -- reminiscent of those inspired by images of the 20-foot-tall Japanese after Pearl Harbor or the 20-foot-tall Communists at various points in the Cold War (particularly after Sputnik) -- may have been overblown, the threat presented within the United States by al Qaeda greatly exaggerated. The massive and expensive homeland security apparatus erected since 9/11 may be persecuting some, spying on many, inconveniencing most, and taxing all to defend the United States against an enemy that scarcely exists.

Terrorism really doesn't matter

Really! You're more likely to die of a car accident, drowning, fire, or murder. Yes, we've covered this before, but it bears repeating:

Michael Rothschild, a former business professor at the University of Wisconsin, worked out a couple of plausible scenarios. For example, he figured that if terrorists were to destroy entirely one of America's 40,000 shopping malls per week, your chances of being there at the wrong time would be about one in one million or more. Rothschild also estimated that if terrorists hijacked and crashed one of America's 18,000 commercial flights per week that your chance of being on the crashed plane would be one in 135,000.

Even if terrorists were able to pull off one attack per year on the scale of the 9/11 atrocity, that would mean your one-year risk would be one in 100,000 and your lifetime risk would be about one in 1300. (300,000,000 ÷ 3,000 = 100,000 ÷ 78 years = 1282) In other words, your risk of dying in a plausible terrorist attack is much lower than your risk of dying in a car accident, by walking across the street, by drowning, in a fire, by falling, or by being murdered.

...with risks this low there is no reason for us not to continue to live our lives as though terrorism doesn't matter—because it doesn't really matter. We ultimately vanquish terrorism when we refuse to be terrorized.

Emphasis mine. The graphic (click to enlarge) is from National Geographic magazine's August 2006 issue, based on the National Safety Council's Odds of Dying statistics.

National Research Council Rejects EPA Risk Assessment Methodology

...the EPA assumed that because extremely high doses of dioxin in animals caused cancer, there was a linear risk for humans: very low exposure levels would still present a risk. The NRC concluded that the "EPA's decision to rely solely on a default linear model lacked adequate scientific support."...

Given that many environmental health scares (such as PCBs in salmon) are driven by linear risk assessments, it is important for reporters to determine whether the bulk of the evidence points to the chemical being genotoxic (thus warranting the linear risk assessment) or non-genotoxic.

Because its default position has been that all carcinogenic risks are linear, the EPA is often at odds with other international regulatory bodies (and indeed, the Food and Drug Administration here in the U.S.) in its risk assessments. The media should be wary of falling for advocacy campaigns that make the same assumptions.

Also, a link to Michael Fumento's Call off the Dioxin Dogs

Poison in your food

The breathless Should we worry about soya in our food? warns us away from soybeans. One of the people it cites is the owner of a brand of organic soy sauces.

He lived in Japan for 18 years and his Japanese wife, Setsuko, is a cookery teacher. "I never saw soy beans on the table in Japan - they're indigestible."

In Japan they eat soybeans they call edamame and in Taiwan and China, they call them máodòu 毛豆.

I'm skeptical about the dangers of the soybean. Lots of vegetables are dangerous. Consider the following, based on information from the New Zealand Food Safety Authority and the Food Toxicology chapter of Prevention and Therapy of Cancer and Other Common Diseases: Alternative and Traditional Approaches:

• Almonds, fruit pits (apple, apricot, cherry, peach, pear, plum), lima beans, flax seed and cassava or manioc are among the highest sources of amygdalin, which can turn into hydrogen cyanide in the stomach causing discomfort, illness and sometimes death.
• Edible foods containing furocoumarins include celery, parsley, parsnips, citrus fruits, figs and some spices. Normal levels of furocoumarin are low in celery, while markedly increased concentrations are found following fungal invasion or following exposure to cold, chemicals or UV radiations. The highest concentrations are found in edible parts of roots of celery, parsnips and parsley. One of the toxins can cause stomach ache and may also cause a painful skin reaction when contact with the plant is combined with UV rays from sunlight.
• All potatoes contain natural toxins called glycoalkaloids. The levels are usually low but higher levels are found in sprouts, and the peel of potatoes that taste bitter. Severe stomach ache and even death from glycoalkaloid poisoning has been reported overseas, but is very unusual.
• Lectins have been found at comparatively high levels in legume seeds, beans, potatoes and wheat germ. As few as four or five raw kidney beans can cause severe stomach ache, vomiting and diarrhoea.
• Plants like spinach, rhubarb, beet leaves, tea and cocoa contain oxalic acid. The bioavailability of oxalate was greatest for peanuts and beet roots and somewhat less for rhubarb and spinach. Oxalic acid poisoning can cause muscle twitching, cramps, decreased breathing and heart action, vomiting, pain, headache, convulsions and coma.
• Zucchini may occasionally contain a family of natural toxins called cucurbitacins. Bitter zucchinis have caused people to experience vomiting, stomach cramps, diarrhoea and collapse.
• Raw or unprocessed cassava, bamboo shoots, flax and lima beans contain a toxin called cyanogenic glycosides. This can lead to exposure to hydrogen cyanide and its related toxicity.
• Consumption of divicine found in fava beans (Vicia faba) or inhalation of its pollen can produce a disease syndrome termed favism. Favism is characterized by hemolytic anemia, hemoglobinuria and shock.
• Marine fish, especially squid, is the major dietary source of dimethylamine. Dimethylamine is a precursor of N-nitrosodimethylamine, a potent carcinogen in a wide variety of animals. Consumers of large amounts of marine fish have an increased risk of stomach cancer.

The "Alternative" in Prevention and Therapy of Cancer and Other Common Diseases: Alternative and Traditional Approaches sounds a little unscientific to me, but it's packed with references, and the author also sounds a couple of caveats:

[A]ll plant materials contain natural pesticides, alkaloids and other chemicals that are as mutagenic as industrial chemicals. Furthermore, food processing and preparation added considerably amounts of mutagens to the diet. Ames estimated that each day the average American consumed 1,500 mg of natural pesticides compared to less than 0.1 mg of synthetic pesticides. Many of the vitamins are beneficial at low doses but toxic at high doses. Ultraviolet radiation in sunshine activates vitamin D and prevents rickets but in high doses causes skin cancer.

Concern has been expressed about synthetic or naturally-occurring chemicals in foods as causative agents in human cancer.... However, the toxicity of these chemicals may often be minimized by natural defense systems in food, such as metabolism and DNA repair. A holistic view of toxic factors provides a more meaningful risk assessment of dietary toxins and carcinogens. Food additives prevent food spoilage and poisoning from pathogens and protect nutritional quality of foods. No evidence has been found that these compounds in current use in industrialized countries significantly contributes to the overall cancer risk. They do, however, substantially reduce the risk of pathogen related food poisoning, which far outweighs any unproven risk of increased cancer.

Scary Food

Americans take food safety very seriously. Still, many consumers tend to ignore Mother Nature's contaminants while they worry unduly about high technology, such as the advanced technologies that farmers, plant breeders, and food processors use to make our food supply the most affordable, nutritious, varied, and safe in history.

For example, recombinant dna technology — also known as food biotechnology, gene-splicing, or genetic modification (gm) — is often singled out by critics as posing a risk that new allergens, toxins, or other nasty substances will be introduced into the food supply.... Scientists agree, however, that gene-spliced crops and foods are not only better for the natural environment than conventionally produced food crops, but also safer for consumers. Several varieties now on the market have been modified to resist insect predation and plant diseases, which makes the harvested crop much cleaner and safer....

Every year, scores of packaged food products are recalled from the American market due to the presence of all-natural contaminants like insect parts, toxic molds, bacteria, and viruses. Because farming takes place out-of-doors and in dirt, such contamination is a fact of life. Fortunately, modern technology has enabled farmers and food processors to minimize the threat from these contaminants.