W. Kip Viscusi

Do Smokers Underestimate Risks

This paper uses a national survey of 3,119 individuals to examine the effect of lung cancer risk perceptions on smoking activity. Both smokers and nonsmokers greatly overestimate the lung cancer risk of cigarette smoking, and the extent of the overestimation is much greater than the extent of underestimation. These risk perceptions in turn significantly reduce the probability of smoking, as suggested by an economic model of risky consumption decisions. Cigarette excise taxes in effect endow individuals with additional risk perceptions comparable to their current assessed lung cancer risks.

Economic Contests: Comparative Reward Schemes

Contests are situations in which an individuals reward depends on his performance relative to others. Students are graded on a curve; the candidate with the most votes gets the political office; the underling who performs best is promoted to the executive position. Contests are useful in dealing with indivisible rewards, reducing monitoring costs, and minimizing risks from common uncertainties. They are employed to sort potential participants and, once they have entered, to induce appropriate effort from them. With monitoring precision and prize spreads as potential choice variables, optimal contest structures are derived for fair and unfair contests among equal and unequal participants. The converse problems of climbing-low-ability individuals enter the contest designed for high-ability candidates-and slumming are shown to be manageable.

Prospective Reference Theory: Toward an Explanation of the Paradoxes

This article develops a variant of the expected utility model termed prospective reference theory. Although the standard model occurs as a limiting case, the general approach is that individuals treat stated experimental probabilities as imperfect information. This model is applied to a wide variety of aberrant phenomena, including the Allais paradox, the overweighting of low-probability events, the existence of premiums for certain elimination of risks, and the representativeness heuristic. The prospective reference theory model predicts most of the observed behavioral patterns rather than being potentially reconcilable with such phenomena.

Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards

IN the almost two decades since the initial wave of social regulation, the academic literature documented very few, if any, instances of a health, safety, or environmental regulation being an unqualified success. Indeed, in most cases, the problem is even more fundamental. The typical analysis of government regulation found that the regulation did not even fulfill its primary mission, much less pass a more demanding benefit-cost test. This absence of a well-documented case study of effective social regulation may be due, in part, to the particular set of regulations selected for analysis. There is certainly no inherent economic reason why such regulations cannot play a productive role in our economy. In the case of environmental quality, for example, the externality problems being addressed are not handled well by markets, implying that government regulation has at least the potential for playing a beneficial role. However, this potential will not be realized if the regulations are ill conceived or not effectively enforced, or if the environmental problem has no feasible solution. A brief review of past regulatory experiences may be instructive to put in better perspective the Environmental Protection Agencys (EPA) water pollution control effort-the focus of this article. Most of these detailed evaluations have been done with respect to agencies other than the EPA.

An Investigation of the Rationality of Consumer Valuations of Multiple Health Risks

After developing a conceptual analysis of consumer valuation of multiple risks, we explore both economic and cognitive hypotheses regarding individual risk-taking. Using a sample of over 1,500 consumers, our study ascertains risk-dollar tradeoffs for the risks associated with using an insecticide and a toilet bowl cleaner. We observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases. We also find evidence of certainty premiums for the total elimination of one risk, but no strong evidence of additional certainty premiums for the elimination of multiple risks. Strong reference risk effects are evident, as increases in risk were valued much more greatly than were decreases.

Smoking : making the risky decision

This is a book on smoking that uses rigorous empirical data to explore in detail the character of the tradeoffs that people make in choosing whether to smoke or not to smoke. It is, therefore, not strictly about the hazards of smoking but about how peoples perceptions of the risk of smoking affects their smoking behaviour. Some of the interesting and potentially controversial conclusions include: 1) People overestimate the risk of lung cancer compared to the actual incidence of the disease; 2) if people had an accurate perception of the risk of lung cancer national smoking rates would rise by 8%; 3) excise taxes on cigarettes increase peoples risk perceptions and decrease smoking rates; 4) people who smoke are more likely to accept work in hazardous professions, and require less extra compensation for hazardous work than non-smokers; 5) young people, who are making the decision whether to smoke have a higher perception of the risks of smoking than older people.

Risk by choice : regulating health and safety in the workplace

Analyzes the proper role of the government in the elimination of occupational health and safety hazards and evaluates the effectiveness of attempts to regulate industrial health risks.

Rates of Time Preference and Consumer Valuations of Automobile Safety and Fuel Efficiency

This article estimates hedonic price models for automobiles using a data set on almost 3,000 households from the U.S. Department of Energy Residential Transportation Energy Consumption Survey. The standard hedonic models are generalized to recognize the role of discounting of fuel efficiency and safety, yielding an estimated rate of time preference ranging from 11 to 17 percent. This range includes the prevailing rate of interest for car loans in 1988 and is consequently consistent with market rates. Purchasers exhibit an implicit value of life ranging from

Age Variations in Risk Perceptions and Smoking Decisions

2.6 to

Estimation of State-Dependent Utility Functions Using Survey Data

3.7 million, which is within the range found in the labor market as well as other market contexts. The model also estimates a significant price effect for auto injury risks and fuel efficiency.