Russ Roberts

Sunstein on Worst-case Scenarios

EconTalk Episode with Cass Sunstein
Hosted by Russ Roberts
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Sunstein.jpgCass Sunstein of the University of Chicago talks about the ideas in his latest book, Worst-Case Scenarios. How should individuals and societies cope with low-probability events with potentially catastrophic consequences? In this conversation with EconTalk host Russ Roberts, Sunstein discusses the uselessness of the precautionary principle as a guide to behavior and the psychological challenges we all face in coping with uncertain, risky events. He also speculates why we have chosen politically to treat terrorism and global warming so differently.

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0:36Intro. Human propensity to think of things as safe or unsafe. Risks of crime, terrorism, war. Evolution. Comes up with regard to medical issues. Have to think in terms of gradations. But most people are not good at estimating uncertainty. Cases involving tort law, the environment, etc. Thinking anticipatorially. I can go to sleep or I have to stay awake--mammals. There are cases where we can't even assign probabilities with much confidence. Professors of statistics even have to think about it. One percent doctrine: Should a 1% chance of something horrific be treated as a certainty? Dick Cheney. With respect to terrorist attacks versus daily life, there is a big difference. You don't dismiss 1 in 100 chances, but they are wrong in thinking that it's the same as a much higher probability. There are costs of responding, and doing something about it also has risks. Climate change--responses also have risks. Aggressive response to greenhouse gases has risks: world could object (low probability), prices will jump and poor people will have fewer resources (higher probability). Same with responses to terrorism--risks of responses' costs and burdens. Have to weigh costs. We have trouble keeping those future potential costs in mind.
9:53How differently we've approached terrorism and climate change. For terrorism we've spent hundreds of billions of dollars. For climate change, the costs are viewed as horrifyingly expensive. Kyoto versus Iraq. Explanation: start by looking at rational self-interest. Americans have thought that climate change would benefit the rest of the world but be mostly a cost for us--perception, right or wrong. No Democratic senator supported the Kyoto Protocol. For terrorism, the thought is that Americans have a great deal to fear in the short run. Differential reactions seem rational under this analysis. Single salient event of Sept. 11 had a massive effect; no similar event for climate change, not even Hurricane Katrina. An available salient event can have a big effect on responses to worst-case scenarios. When there's an event that gets people's emotions going, they often neglect probability altogether. So, for really bad events, medical scares, Saddam Hussein, people react by neglecting the probabilities. Outrage, if there is a single person responsible. Orwell. Climate change doesn't have a face, whereas terrorism does in Al Quaeda.
17:19Could argue in favor of the classical explanation: we got more information after September 11. Could argue that putting a face on outrage forces us to not ignore it. Shortly after Sept. 11, Russ flew into Atlanta to give a talk, nervous, made sure to call his wife as soon as the plane set down. Got on a shuttle, going at high speed in the rain at night to Athens. Driving is probably much more dangerous. Yet he didn't call his wife after getting into hotel. Humans have trouble with assessing risk accurately. Availability heuristic, Daniel Kahneman's Nobel Prize: When people are assessing probabilities they think of examples rather than as statisticians. Homicide vs. suicide probabilities. People think more people die from accidents than diseases because accidents are available salient events, but the opposite is true. Nuclear power plant events. Bounded rationality: use these mental short cuts to make judgments about probability. So you could argue that people just rationally updated after Sept. 11. But even several years afterwards people assessed very high probability of terrorist attacks. People chose to drive rather than fly. Feeling of control can diminish feeling of risk--but that's not statistically sensible.
23:54Case study in book: political economy of Kyoto versus Montreal Protocols. Under Reagan, U.S. was very aggressive in attacking ozone depletion, more aggressively than Europe. On Kyoto, Democrats were opposed. For ozone, Montreal Protocol, Council of Economic Advisers said this was a bargain for the U.S. in terms of reducing skin cancer, etc., pointing out that even the unilateral action would provide more benefits than costs for the U.S. For the ozone question, Republicans and Democrats were driving for it. For Kyoto, U.S. would get nearly zero in monetized benefits, maybe $12 billion for 10 times the cost of the Montreal Protocol, $335 billion. Rest of world excluded from bearing the costs of the Kyoto Protocol. Excluded parts of world that were creating large parts of the emissions. Nations that were regulated to freeze their emissions around 1990 levels, yet reduction in anticipated warming would be very small. Bi-partisan rejection. Argument for it was that it was a first step toward a broader agreement. But even for the world the benefits would not have been that great. Some states are talking about it. Cities, e.g., California, are undertaking emissions reductions that will cost them but not benefit them and maybe not anyone else. Why are politicians and states doing this? Confusion, hope: people think their own contribution will do something even if it won't. Hope is a noble one: maybe start a cascade that will spur international action. Perceived moral obligation: India, Africa are at tremendous risk from climate change. Sense that if it turns out to be very costly, California would revisit. Moral imperative is comforting and very real. Delusion, unintended consequences.
35:50Fifth explanation: Bootlegger and Baptist story, Bruce Yandle podcast. Politicians by looking green funnel resources to favored special interests. Swell ranks of government, medical equipment makers. In the face of some social risks, the beneficiary will be a self-interested group. Farm lobby, ethanol. Genetic modification of food in Europe is a perceived as a major risk issue, result is protectionism. For climate change, will we get special interests? Worst-case entrepreneurs: people who fan the flames of fear or who try to steer public policy in the direction they favor. Attack on nuclear power invoked 3-Mile Island and Chernobyl and were successful. Case of DDT, Rachel Carson's Silent Spring, had a very large international impact. In developing world, though, DDT controls malaria, so risks on both sides. In U.S., mosquitoes are not as big a problem, easier to cope with malaria, we had alternatives to DDT. Why did the U.S. outrage trump the deaths of those children in developing countries? Why did those countries listen and also ban DDT? Role of the political process, collective action problem. In the U.S. politicians respond more or less to the voters. Outside the U.S. where tyranny is common the voice of the people doesn't matter as much. Wonder if in high malaria areas leaders just said, so what. France's embrace of nuclear power--is it that French citizens are less frightened of Chernobyl or perhaps that French leaders are less sensitive to what citizens want? DeGaulle. Finns, cell phones.
45:56Precautionary principle. Influential internationality, adopted by San Francisco. When cause and effect can't be established burden is on causer to show it is safe. Problem is in the steps it requires. Better safe than sorry, ban on nuclear power. Prohibiting arsenic in drinking water drives up costs, some people will use their own wells, which will be even more dangerous. Taken seriously precautionary principle is incoherent, paralyzing. Lay in your bed. Life is full of risks. Minor league baseball coach hit by line drive and died last summer. Very rare event, never happened before. General managers met and will require coaches to wear some kind of helmet. Example of a salient tragedy. One death is too many. Of course, we could also have no coaches, driving to ball park is more dangerous. Not high cost to have helmets, but probably not warranted based on the low risk. Shark attack scare. Medical advice, full disclosure, procedure safe enough may still have a high risk of disaster, higher than risk of shark attacks or coach dying. Distress from hearing about that. Kling podcast, lupus, test seems accurate. Governments versus individuals, size of risk. anxiety for individuals.
55:11Discounting, bear a large cost today but benefits won't occur till future. Future will be wealthier, but also by sacrificing much wealth today we will reduce that future wealth. Discounting lives versus discounting money. Lives in the future worth same as lives today, but $100 100 years from now is very different from $100 today. $1 now is worth more than 20 years from now because you can invest it, time preference for money; may not even live to see the benefits. Should we discount lives as well as money?

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COMMENTS (20 to date)
Tim Lambert writes:

You have fallen for the DDT ban myth. The agricultural use of DDT has been banned, but the use of DDT against malaria has never been banned and continues to this day. (Though it is used less than it was because mosquitoes have evolved resistance in many places and there are more effective means in other places.) Banning the agricultural use of DDT has helped save lives by slowing the evolution of DDT resistance.

Aaron Swartz has an article that goes into the details. I think you should delete the link to the misnamed Africa Fighting Malaria and replace with a link to Swartz's article.

If this untrue story is in your book, you should perhaps make a correction.

Russ Roberts writes:

Tim Lambert,

Thanks for the link to the Swartz article. It is provocative but not persuasive. Do you have any other sources with a more scientific and less angry and ad hominem approach?

Tim Lambert writes:

Russ, what, specifically, do you think is incorrect in Swartz's article?

If you think that DDT use against malaria is banned, how do you explain this list of countries using it?

Russ Roberts writes:

Tim Lambert,

I didn't say there was anything incorrect in the article. I said I found it unconvincing. Readers are free to make up their own minds.

Pointing out that in recent years, ten of seventeen African countries have started spraying DDT indoors does not prove the main thesis of the article--that mosquito-resistance rather than political pressure is the main cause for reduced use of DDT in the past. If anything, it is consistent with the opposite point--that until recently, African nations did not spray even indoors, for fear of environmental consequences.

Lauren writes:

Hi, Tim.

You asked Russ:

If you think that DDT use against malaria is banned, how do you explain this list of countries using it?

Though Russ never was definite in the podcast that there were a lot of countries that banned DDT because it was a side-issue, since you've taken on the matter, I went to the url you supplied looking for a list of countries using DDT as you suggested. What I found instead was a list of 15 less-developed countries, from Botswana to Yemen, that in fact are using DDT subject to constraints in some circumstances. The point of the table seems to be to list not whether or not those countries are using DDT, but whether those countries have registered with the 2001 Stockholm convention on the subject.

It's great that there's a table you could find on the internet related to the question, but the page you supplied doesn't seem to supply any further information.

That most of those 15 countries are using DDT though only subject to some internally-superimposed. country-by-country constraints may in fact support Russ's side-argument in the podcast. The podcast's actual question is not whether or not this or that country is using DDT, though the evidence you've supplied in fact supports the case presented in the podcast.

The podcast's question is whether people on average tend to overreact or mis-estimate probabilities. Your leaping to supply so tenuous a url seems to support the podcast's thesis that on average people tend to mis-estimate probabilities and get distracted by emotional matters, unrelated to the objective probabilities.

Tim Lambert writes:

Russ claimed that the use of DDT against malaria was banned and that there had been hundreds of thousands or millions of dead children as a result. I would have thought that a list of places where it is being used would falsify the claim that it is banned.

I think the interesting thing about the podcast is their acceptance of a claim that is false and easily seen to be false with a few minutes research.

Russ Roberts writes:

Tim,

You are creating a wonderful straw man. In the podcast, Cass Sunstein talked about how what he calls "worst-case" entrepreneurs scared people about DDT. That led many African countries to stop using DDT to fight malaria either to placate the US or international organizations. In recent years, people have fought to get DDT used again. They have been somewhat successful.

The only thing worth discussing is whether the poor nations that stopped using DDT for decades did so out of environmental concerns, a desire to curry favor with the US, or for purely biological reasons as the article you cited suggests. If you have some additional evidence for the biological theory, please produce it.

Tim Lambert writes:

Perhaps you could tell us which African countries you think stopped using DDT because of environmentalists?

The country most often cited as stopping DDT because of Silent Spring is Sri Lanka, not in Africa.

Sri Lanka stopped DDT use because the mosquitoes evolved resistance. Details are here.

Schepp writes:

Dr. Roberts

Great Podcast again. I thought you might find it interesting the increased focus on bridge repair after the disasterous collapse in Minneapolis. In this case I think there are things in hind sight that could have been done better, but we now have an additional $1 billion going to bridge repair and inspection because of the "face" of I35W. Building quality bridges and maintaining them properly is surely needed but of the 40,000 lives lost each year to traffic deaths each year far less than 100 are attributed to collapsing bridges.

As you noted in your trip to Athens rural 2 lane roads are dangerous. With fatalities in the range of 5 fataities per 100 million miles traveled, it is quite possible that the this increased inspection will impact lives of those inspecting. I think the proper question is what is the marginal benefit of the increase inspection vs marginal benefit of providing safety improvment at the highest accident rate roads or intersections. This should be measured in lives saved to avoid the response of the only purpose is the money.

Mike S writes:

The precautionary principle is to decision-making under uncertainty as The Golden Rule is to ethics. Neither holds up to close scrutiny, but both are useful for making quick judgments.

As Cass Sunstein pointed out, the precautionary principle is too simple a model for policy-making. I would have liked to hear more advanced models discussed, particularly expected utility. An example of its application can be found in the Stern Review Report. To my knowledge it's the most exhaustive application of expected utility to the issue of climate change.

The Stern Review also looked at the non-marginal economic effects of large, irreversible changes. Applying marginal thinking to the problem of climate change leads to analyses such as Bjorn Lomborg's, which indicate that problems like Malaria should be solved before any action is taken on climate change. If I'm not mistaken, this is the same 'Mediocristan' bias that Nassim Taleb warns us of.

Ron Hardin writes:

People are wired to judge risk by what happens in their neighborhood. With mass communication and the need for TV ratings, every bizarre event in the country is brought into everybody's neighborhood, which vastly skews the intuitions about risk, as well as raising ratings.

The societial evolution worked when rare events caused only a small neighborhood to misevaluate risk, for the rest of the country hadn't seen it and continued with the old evaluations.

But now everybody makes the same mistakes in judgment with every rare event. It's no longer the case that it didn't happen in your neighborhood.

The gold standard for risk consists of those things that happen often enough not to be news, but you hear of occasionally, say traffic fatalities. Perhaps you know a family a couple of blocks over that lost somebody, and so you have a pretty good feeling for the risk of driving out for pizza, and that it's tolerable.

But rare events are worried about far too much, being news. I call it a population effect : any judgment of danger that doesn't divide the population out has an agenda.

Luke O writes:

Really great podcast. I especially liked the sections where you touched on the cost of our responses to terrorism.

Recently the show "South Park" examined this idea in a 3 part episode in which terrorists attack our imaginations and the goverment response is to nuke our imaginations. I recommend watching it, as it's hilarious but also makes an excellent point that some of our responses to terrorism are absurd.

Another point I would make on some of the final comments is that the unit of decisions should not be seen as individuals, but as genes. People will often behave altruistically if viewed from the point of view of an outside observer, when in fact they are behaving selfishly towards copies of their own genes. Richard Dawkins "The Selfish Gene" describes the idea perfectly. I think it would be quite easy for us to take precautionary measures against climate change and easily see the value in doing such things, because in the long term it benefits our own genes.

Luke O writes:

Actually let me rephrase my last point. I don't think it's currently easy for us to take precautionary measures and what appear to be sacrifices now. I do think that it will be easier to do if we see the long term benefits to our genes, and our apparent sacrifices in will not be sacrifices at all, but long term good investments.

Isaac Crawford writes:

I think that a potentially interesting application of these ideas could be applied to religion. If all religious people were 100% certain of their beliefs, the world would be a much different place. As it is, I think that religious people (myself included) hedge a bit when it comes to making big decisions. We tend to weight the known world more than the promised, but unseen life to come despite the fact that there are potentially grave consequences if that future life is all it's made out to be. Where's Larry Iannocce when you need him?:-)

Isaac Crawford
Blogging in yemen
www.isaharr.com

Drambuie_man writes:

Since I am caught up, and CNN International is featuring an hour-long feature on (no joke) how wrestling is fixed (oh the shock!), I thought I would add my two cents to few provocative thoughts in another great podcast.

Re: Cities banning carbon emissions

My first reaction to this is conspicuous consumption. It as if the city got together and said “We are so rich that we can afford to burn US$1 Billion a year in area GDP!” I have long felt that environmentalism is a luxury good (for lack of better words) and activity like this only adds to that thought.

Second, I am reminded of an “Affordable Housing” program in southern Orange County California. I forget the exact details but a few cities down there have a zoning provision on their books saying something like “every 10th house in a housing track must be built/priced so that it is 40% less than the previous 9”. The rationale was to provide “affordable housing”, of course in reality it was a sham since the average house was like $1 million, and no way can you argue a $600,000 house is “affordable” in the context it’s usually used.

My economics professor at the time argued, quite persuasively, that the idea for the law was not altruism/diversity but rather that since it limited the supply of the $1 million dollar homes and decreased the incentive for a housing developer it increased the resale value of existing homes in the community. In other words a bit of the aforementioned “Baptist and Bootlegger” argument.

Likewise I wonder about the pollution situation. Capping carbon emissions in the city would certainly make life better for existing companies in the city. Now since goods are pretty mobile in the US, I doubt it would affect consumer prices. But would an eventual reality of such a law be depressed wages in the city for those involved in industrial activities?

(I add that, as pointed by every union leader I have seen, that low level industrial jobs are a important way for the lower classes to advance to the middle class. Such a depression of such jobs, using the above argument, would limit the avenues for advancement in the city involved.)

Re: Discounting Future Lives

I think the discussion in this podcast created somewhat of straw man. I wonder if most of the discussion in this area is about quality of life issues that would effect things like fertility and thus the future population, rather than simply the death of future existing people (there’s a tortured phrase for you!).

Phil Segal writes:

Interesting podcast. Near the end, Sunstein discusses discounting the future. Nothing new about this, investors do it all the time. However, a couple of thoughts for consideration:

1) We may be more willing to invest for a far distant future if it will aid our expected direct descendants. Many people have tried to establish dynasty trusts rather than simply spend everything during their lifetimes. Also, consider the olive farmer who plants trees that will return profitable crops for decades or even centuries after he dies. Probably he expects his children, grandchildren, etc. etc. etc. to profit from his investment. A subtle form of trying to achieve immortality?

2) The theoretical 100 people who might die a hundred years from now may mean nothing to the average person. But, tell him it will be his grandson or great grandson and the present value of the discounting is likely to change substantially.

3) Even very low probablity but high cost risks, on the order of 1 per 100,000 or even 1 per 1,000,000 can be significant if you or someone you know/love is the one. My risk of death or significant injury during surgery may be quite low, but if I die or end up permanently injured, the "low risk" means nothing to me or my family. That said, for many low-risk high-cost possibilities (to an individual) the financial costs can be offset by insurance.

4) In the past, developed countries and presently in many developing countries, some of these risks, particularly of infant or child mortality are hedged with high birth rates. There is a lot of data that indicates birth rates decline with improved wealth and health.

Isaac Crawford writes:

I was surprised that there wasn't some discussion about "Black Swans," I would think that this was basically the flip side of that argument. Or maybe I've misunderstood someone...

Isaac Crawford
Blogging in Yemen
www.isaharr.com

paul writes:

I thought the discounting of future lives question was the most interesting one in this podcast.

Many people argue that human life is priceless, but we can put a value on it based on what we are willing to spend to preserve it. For instance, how much does a marginal ambulance and crew cost per year, and how many life-years does that ambulance save every year?

We can instead invest that money so our children can buy more ambulances at a future date, thus saving a larger number of life-years for the same current investment. (Assuming that the investment grows at a higher rate than the cost of ambulances.)

Doesn't that imply that there is a time-value aspect to human life? (If it costs the same amount to save one life now as it does to invest the money and save ten lives 100 years from now.)

Tim writes:

There are some interesting recent figures on the output of green house gases mentioned in the following reports.

In the US CO2 output down 1.5 % in 2006.
http://www.eia.doe.gov/neic/press/press291.html

At the same time 'The Guardian' (UK) reports...

"In 2006, industry emitted about 30m tonnes less than permitted. German emissions rose 0.6% while overall EU emissions went up by 1%-1.5% because of resumed growth in the eurozone."

http://www.guardian.co.uk/business/2007/apr/03/carbonemissions.environment

The way these two figures book ends the other and the counter-intuitive nature that the anti-Kyoto US is down whilst the pro-Kyoto EU is up is fascinating.

RTS writes:

Wow ... great podcast. Outstanding. Great questions and great comments.

Two things:

First, Kahneman's incredible incite once again plays a huge part. Can we please get a podcast from him? (especially w/ questions about corporations)

Second, you both laughed about the farm subsidies, but ... c,mon ... the subsidies to higher education have yet to be justified by any economists which makes economists look like hypocrites.

Great though. I'll continue to listen.

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