VALUATIONS OF CHANGES IN RISKS: THE REFERENCE STATE AND EVIDENCE OF DIFFERENCES BETWEEN THE MEASURES

Given the pervasive evidence that people typically value changes in terms of comparisons to a reference state, and that they commonly value losses and reductions of losses more than gains, current risk assessment and valuation practice is likely to lead to systematic bias and distorted guidance. Willingness to pay estimates of the value of reducing the risk of harm are, for example, likely to understate the value of actions to bring this about. Differences in valuations resulting from different measures are illustrated, and the criteria for the choice between measures of the value of positive and negative changes in risk are demonstrated with results from a new risk study in China.