Cass Sunstein, “If Misfearing is the Problem, is Cost-Benefit Analysis the Solution?” Chapter 13, pages 231-242, in The Behavioral Foundations of Public Policy, Eldar Shafir, editor, Princeton: Princeton University Press, 2013.
• The usual rationale for cost-benefit analysis (CBA) is that it promotes economic efficiency; nevertheless, perhaps the better argument for CBA is that it allows improved responses to the mis-fears of the public.
• The idea is that CBA is sort of a System 2 check on System 1 errors, to employ the terminology of Kahneman.
• People can misfear for multiple reasons, including the availability heuristic, informational cascades, excessive insensitivity to changes in probabilities, and the tendency to think that high-risk activities also involve small benefits.
• CBA is built around willingness-to-pay (WTP). But isn’t it the case that WTP depends on perceptions of risks and benefits, so that WTP itself might be the product of misfearing? Can we take preferences as given in conducting a CBA, or do we have to recognize that preferences and perceptions can be shaped?
• “Incompletely theorized agreements” are possible (and common?), where people can pragmatically agree upon a policy even though they have separate (and incompatible?) reasons for supporting the policy.
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