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Marc F. Bellemare Posts

Our Risk Perceptions Do Not Make Much Sense

So much of what we think and do about risk does not make sense. (…) In Europe, where there are more cell phones than people and sales keep climbing, a survey found that more than 50 percent of Europeans believe the dubious claims that cell phones are a serious threat to health. And then there’s the striking contrast between Europeans’ smoking habits and their aversion to foods containing genetically modified organisms. Surely one of the great riddles to be answered by science is how the same person who doesn’t think twice about lighting a Gauloise will march in the streets demanding a ban on products that have never been proven to have caused so much as a single case of indigestion.

That’s Dan Gardner, in the introduction to his 2009 book Risk: The Science and Politics of Fear. Gardner also has another book out titled Future Babble, on the lack of accountability — not to mention the lack of accuracy — of experts making predictions.

I have the students in my Law, Economics, and Organization seminar read the beginning chapters of Gardner’s book as part of our in-class discussion of risk sharing and incentives, and they usually find Gardner’s book to be thought-provoking.

Speeding Fines That Vary With Income: Absolute vs. Relative Risk Aversion and Public Policy

Where there are posted restrictions, most European countries take speeding very seriously and levy hefty fines. The latest case in point is a 37 year-old Swedish man who was clocked at 180 miles per hour on a motorway between Bern and Lausanne in Switzerland.

Unfortunately for this driver of a new Mercedes-Benz SLS AMG, Switzerland doesn’t have fixed fines for speeding. Instead they use a formula similar to that in Finland where the fine is calculated based on the vehicle’s speed and the driver’s income. Back in 2002, Nokia executive Anssi Vanjoki had to pay a fine of $103,600 for going 47 mph in a 31 mph zone.

A student in my Law, Economics, and Organization seminar mentioned the article quoted above last week when I was explaining the difference between the twin concepts of absolute and relative risk aversion.

In economics, risk is not so much about what most people call risk as it is about gambles over income. In other words, risk preferences are defined over income or wealth. See here for an excellent discussion starting on page 64 in chapter 6 of David Friedman’s Law’s Order. So why would Switzerland and Finland have speeding fines that vary with income?

Postdoctoral Fellowship at UC Davis

I  received the following announcement from the Index Insurance Innovation Initiative, which is funding my work on index insurance for cotton producers in Mali:

The BASIS Assets and Market Access Collaborative Research Support Program at the University of California, Davis seeks to hire a post-doc in economics or agricultural economics to assist with the development and implementation of its research program on risk and insurance. BASIS and its sister Index Insurance Innovation Initiative (I4) currently have ten rural insurance pilot projects underway. There is burgeoning interest in determining whether and how index insurance instruments can be used to solve long-standing development problems associated with uninsured risk, and the newly refunded BASIS program anticipates funding additional research in this area using its core grant funds from the US Agency for International Development. In addition, we expect opportunities to develop further research in this area by working directly with USAID’s missions worldwide.

Working in collaboration with the BASIS director, Michael Carter, and USAID staff, the Post-Doc will engage in a program of outreach to USAID missions. We anticipate that the results of these visits will be further demands for technical analysis of possible index insurance solutions and research project design. The post-doc will have ample opportunity to participate and direct resulting research programs on this topic. In addition to these research activities, the post-doc will take responsibility for preparing a set of “how-to” briefs explaining index insurance issues and options for practitioners. The post-doc will interact and may collaborate with the full team of I4 researchers, which includes faculty members and researchers at a broad range of institutions, including Australian National University, the Universities of Athens, California-Berkeley, California-Davis, California-San Diego, Colorado, Cornell, Duke, Namur, Oxford, the Food and Agriculture Organization of the United Nations, the International Food Policy Research Institute, and the International Livestock Research Institute.

The position requires a PhD in economics and agricultural economics. Prior research on agricultural risk and insurance is highly desirable, as is experience with impact evaluation of complex programs. Excellent writing and communication skills are a must. Funding is available for up to five years, although it is anticipated that most individuals will want to hold the position for only a fraction of that time period. The position will require extended trips to various world regions several times per year. Interested individuals should send an application letter describing qualifications, a CV, a list of references and a research paper to ifour@ucdavis.edu. Questions may also be directed to that address. Applications must be received by 1 March to receive full consideration. The position will be available by 1 April 2012, although it is expected that most candidates will not be available to start the position until mid-year.