Risk perception and the value of safety for low probability, high consequence risks: theoretical and empirical investigation

The purpose of this study is to explore the relationship between individuals' risk perceptions and their willingness-to-pay for increased safety in low-probability, high consequence risk situations. In order to explore this relationship, we first review some previous theoretical models on individual decision making in risky situations, specifically for low-probability, high-consequence risks. Although standard economic theories have built a substantial framework to explain behavioral responses to risks, they are not fully adequate to describe people's decisions under some uncertain and risky situations, particularly for low-probability events (Camerer and Kunreuther, 1989). Therefore, empirical investigations become crucial. Consistent with McClelland, Shulze, and Coursey (1993), we believe that field and lab studies provide complementary information for low-probability risks.