craschworks

Via Alex Taborrok of the Armchair Economist list. An illustration of the dangers of misjudging risks.

http://www.washingtonpost.com/ac2/wp-dyn/A7812-2001Nov23?language=printer

Terrorism and You — The Real Odds

By Michael L. Rothschild

Sunday, November 25, 2001; Page B07

The odds of dying in an automobile accident each year are about one in 7,000, yet we continue to drive. The odds of dying from heart disease in
any given year are one in 400 and of dying from cancer one in 600, yet many of us fail to exercise or maintain a healthy diet. We have learned
to live with these common threats to our health. Yet we have been afraid to return to the malls and the skies.

What are the odds of dying on our next flight or next trip to a shopping mall? There are more than 40,000 malls in this country, and each is
open about 75 hours per week. If a person shopped for two hours each week and terrorists were able to destroy one mall per week, the odds of
being at the wrong place at the wrong time would be approximately 1.5 million to 1. If terrorists destroyed one mall each month, the odds
would climb to one in 6 million. This assumes the total destruction of the entire mall; if that unlikely event didn't occur, the odds would
become even more favorable.

In another hypothetical but horrible scenario, let us assume that each week one commercial aircraft were hijacked and crashed. What are the
odds that a person who goes on one trip per month would be in that plane? There are currently about 18,000 commercial flights a day, and if
that person's trip has four flights associated with it, the odds against that person's being on a crashed plane are about 135,000 to 1. If there
were only one hijacked plane per month, the odds would be about 540,000 to 1.

Stories in the news media have begun to consider the virtue of a public relations campaign in Muslim nations to bring our side of the war to
the populations of these countries. While this can be an important strategy, I would like to suggest that we need an information campaign in
this country as well, because a key element of life after Sept. 11 has not been well presented to the public: Our leaders and media have not done
a good job of discussing the risks that citizens need to consider when making choices in their daily lives.

We are presented with a continuous stream of stories telling us about the most recent horrible incident and the possibilities of future terrors.
Frequent repetition of these stories may lead people to overestimate the likelihood of future dire events. While we need to be made aware of
potential dangers, we also need to understand the true probabilities of these risks. In the above examples, the scenarios were pretty extreme;
the odds of any one of us being directly affected by a lesser event would be even more remote.

People tend to underestimate the probability of a common event's occurring but overestimate the probability of a rare event. These findings
may be due in part to the frequency with which we are exposed to news stories about the remote versus the common event. Anthrax, which
has so far claimed five lives out of a population of 275 million, is a continuous story, while smoking-related illnesses, which claim about
400,000 lives per year, are not a news story at all.

Anthrax is a big story and is worthy of media attention, but people may be overreacting in changing their personal behavior because of this
remote event. Perhaps they overestimate the potential probabilities that an anthrax-related incident could happen to them because of the
frequency with which they see anthrax-related news stories. In Madison, Wis., it was reported that in some neighborhoods parents didn't
allow their children to go trick-or-treating at Halloween because of the heightened risks of terrorism. What are the odds that any single child
would be affected by terrorists on that one night?

We need to separate the probability that an event may occur in our country and the probability that it will occur to us as individuals. In making
an informed decision about my own behavior, I need to know the probability that I will be personally affected by a terrorist act, not what the
probability is that such an act may occur at some place and some time.

We each have many opportunities to take various actions each day. Each opportunity has multiple choices and multiple outcomes. Each of us
must independently make our own decisions, but we are being given incomplete information on which to base these decisions. As a result we
may have been unnecessarily cautious.

The economic cost to our nation in lost expenditures, resulting in lost jobs and lost businesses, has been enormous. While the impact of any
potential event on any one of us is slight, the impact of the sum of our individual behaviors is great. There is a key question that we need to
consider: What are the odds that I, myself, will be at the exact wrong place at the exact wrong time?

While any terrorist event is horrible, if I act with respect to my own real risk and the probability that I, personally, will be affected, then I can
return to a more normal life. If I act as if each terrorist act will be directed specifically at me, then I will hide, and collectively we will all hide.

The writer is an emeritus professor at the University of Wisconsin's business school.

� 2001 The Washington Post Company