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Decision Processes for Low Probability Events: Policy Implications

Camerer, Colin F. and Kunreuther, Howard (1989) Decision Processes for Low Probability Events: Policy Implications. Journal of Policy Analysis and Management, 8 (4). pp. 565-592. ISSN 0276-8739. doi:10.2307/3325045.

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This survey describes the impact of judgements and choices about low probability, high consequence events on the policymaking process. Empirical evidence indicates that normative models of choice, such as expected utility theory, are inadequate descriptions of individual choices. The ambiguity of low probabilities also affects decisions in ways that are not normative. Further, people exhibit biases in judgments about risks and probabilities. These findings have stimulated development of new theories, such as prospect theory and generalized utility theories incorporating attributes such as regret. The authors survey many of these empirical results and explore their implications for policy. They consider the role of information, economic incentives, compensation, and regulation in inducing socially desirable effects through the reframing of outcomes. They suggest that surveys and experiments can help analysts better understand the decision process for low probability events and design more effective public policies.

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Camerer, Colin F.0000-0003-4049-1871
Additional Information:© 1989 by the Association for Public Policy Analysis and Management. Published by John Wiley & Sons, Inc. This article was partially supported by funds from the Wharton Risk and Decision Processes Center and reflects helpful discussions with Jon Baron, Doug Easterling, Jehoshua Eliashberg, Jack Hershey, Eric Johnson, Steven Kimbrough, Paul Kleindorfer, Marc Knez, George Loewenstein, Mark Machina, Charles Phelps, and Kenneth Richards. Comments are welcome.
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Wharton Risk and Decision Processes CenterUNSPECIFIED
Issue or Number:4
Record Number:CaltechAUTHORS:20110214-105106784
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:22170
Deposited By: Tony Diaz
Deposited On:11 Mar 2011 17:48
Last Modified:09 Nov 2021 16:03

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