Michael Covel

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The Psychometric Paradigm of Risk Perception

This time on Trend Following Radio, I speak with Paul Slovic. Paul is president of Decision Research and a professor of psychology at the University of Oregon, and today he talks with me about the science behind risk perception.

To demonstrate how people tend to conflate actual risk with their perceptions of risk, Paul and I discuss a topic that’s always been a hot button issue in the public consciousness — nuclear power.

In the early days of this industry, people were rightfully concerned with the possible mismanagement of such a potentially dangerous technology – concerns seemingly crystallized by the partial meltdown at Three Mile Island in 1979. Similar concerns continue to be raised today, particularly in light of the Fukushima disaster of 2011.

But as Paul explains, neither of these tragedies can completely outweigh the obvious benefits of nuclear power. It’s a case of risk perception to overcome the actual risk posed.

The conversation also focuses on the role of the media in influencing people’s decision-making processes. Why is it, you might ask, that the media spends so much more time pushing negative stories than positive ones?

The answer, according to Paul, goes back to biology. It’s a survival mechanism in human beings that we’re affected far more by negative stimuli than positive stimuli. This makes sense when you consider the external dangers we’ve faced in our evolution.

So today, we tend to harp on the bad things that happen while ignoring the good.

In this episode of Trend Following Radio:

  • The psychometric paradigm of risk perception
  • Balancing risk vs. reward
  • The concept of affect heuristics
  • How the media sways the public’s risk assessment
  • Fast vs. slow thinking
  • Risk in the context of decision making

To begin listening, click play on the video at the top of this page, or below…

Regards,

Michael Covel
for The Daily Reckoning

P.S. I originally posted this episode of Trend Following Radio, right here.

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