Posts Tagged ‘risk’

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How fear affects policy: Adam Thierer on technopanics

March 14, 2012

Lynne Kiesling

Fear is a strong motivating factor, having evolved over millennia as we have protected ourselves against predators. Fear supports self-preservation by making us risk-averse and cautious. But such a deep, visceral, evolved emotion does not always serve our long-term objectives of thriving; it leads to maximin outcomes, and it is often mismatched to the actual threats to our self-preservation. As our environments change around us, we can fear things we shouldn’t and may not fear things that we should; we overthink everything and tend toward a “precautionary principle” approach, making us risk-averse and cautious.

I think such fear is a component in the persistence of regulation when it’s maladaptive to technological change, so I was happy to read Adam Thierer’s new Mercatus working paper, Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle. Adam lays out a framework for analyzing fear-based attitudes toward technology and technological change that’s informed by economics, sociology, psychology, and rhetoric. He tackles the question of why, and how, participants in public policy debates use appeals to fear to sway opinion toward anticipatory regulation and forms of censorship:

While cyberspace has its fair share of troubles and troublemakers, there is no evidence that the Internet is leading to greater problems for society than previous technologies did. That has not stopped some from suggesting there are reasons to be particularly fearful of the Internet and new digital technologies. There are various individual and institutional factors at work that perpetuate fear-based reasoning and tactics.

He analyzes the use of “appeal to fear” and “appeal to force” logic in the construction of arguments in favor of regulation and censorship, focusing on case studies of online child safety and violent media and online privacy and cybersecurity. In deconstructing these arguments he identifies four ways that fear can be a myth: it may be empirically unfounded and lacking evidence, other variables may be more important in affecting behavior than the feared variable, not all individuals have the same reaction to the feared variable, and other approaches than regulation exist that can mitigate the consequences of the feared variable (pp. 5-6).

Adam introduces the phenomenon of the “technopanic”, which is “… a moral panic centered on societal fears about a particular contemporary technology” (p. 7). Because culture often evolves more slowly than technology, as we are adapting culturally to the new technology we can see these panic phenomena, which can result in demonizing the technology and can lead to calls to “do something”, typically some form of control-based anticipatory regulation or censorship. A crucial part of manipulating individual attitudes to tap into fear and create advocacy for and acceptance of such regulation is what Adam calls “threat inflation”:

Thus, fear appeals are facilitated by the use of threat inflation. Specifically, threat inflation involves the use of fear-inducing rhetoric to inflate artificially the potential harm a new development or technology poses to certain classes of the population, especially children, or to society or the economy at large. These rhetorical flourishes are empirically false or at least greatly blown out of proportion relative to the risk in question. (p. 9)

Allowing threat inflation and technopanics to drive policy outcomes is socially corrosive and wasteful; it diverts resources from their higher-valued uses in dealing with actual risks rather than inflated ones, and it creates an environment of suspicion and social control, particularly censorship and information control. After analyzing six factors that create conditions favorable for the development of threat inflation and technopanics regarding Internet technology (nostalgia, special interests, etc., well worth reading in detail), he proposes two categories of policy response that we should pursue instead of prohibition and anticipatory regulation: resiliency and adaptation. We build resiliency to threats through education, transparency, labeling, etc., and we adapt to living with risk through experimentation, trial-and-error, experience, and social norms. These two are complementary; information-sharing about best practices can shape social norms and get people to change their behavior without regulation. For example, I don’t sign my credit cards, but instead write “CHECK ID” in the signature line and present a photo ID when using them. Having store clerks and other shoppers witness my behavior to protect my identity may lead to their replication of it, and has led over time to a change in behavior (remember back in the 1990s when they used to write your phone number on the receipt? Yikes! But that behavior’s gone extinct.).

We cannot eliminate risk through resilience and adaptation, but we can’t eliminate it through regulation either. Better to have strong, flexible, adaptable institutions and practices that enable us to continue thriving in unknown and changing conditions, while we enjoy the substantial benefits of technological creativity. While I heartily recommend Adam’s paper to you all as a good and thought-provoking read, he also summarizes it in this recent Forbes column.

I would extend Adam’s argument to apply to two case studies. The first is smart grid technology. Fear-based arguments abound in electricity, usually grounded (pun intended!) in the physical reality that electricity is dangerous. But after a century of economic regulation to serve particular social policy objectives, fear-based arguments also show up in arguments against moving away from the status quo both technologically and more economically in general; in my experience these fear-based arguments are used most to advocate for the status quo on behalf of low-income consumers and the elderly, and for that reason I find the use of fear-based arguments heart-wrenching, because when they succeed they deprive vulnerable populations of the benefits of innovation. Another current example is the arguments that digital meters, which transmit data using radio frequency wireless networks and thus emit low-level electromagnetic fields, are making people sick. Despite the absence of any scientific evidence consistent with this hypothesis, California and Maine are using these fear-based claims as a basis for allowing customers to opt out of having a digital meter installed (I have other analyses of this phenomenon, but that’s for another time …).

The second case is threat inflation and the exaggeration of fear to extend the security state. Each of Adam’s six factors contributing to threat inflation is applicable to the growth of the security state — nostalgia, pessimistic bias, “bad news sells”, the political power of the military-security-industrial complex, and so on. The persistence of threat inflation enables these special interests to use fear-based arguments to perpetuate the false belief that we are under constant, persistent threat beyond the actual threat level; this false belief creates the incentives in politicians to “do something” so that they don’t appear “soft on terror” and therefore risk not getting reelected; that political incentive enables security and defense companies to lobby politicians to buy their cutting-edge technologies at very great taxpayer expense to demonstrate to voters that they are “doing something” (even though the technologies have high false positive rates, can be fooled easily, and are more for symbolic security theater than for addressing the most relevant risks that we actually do face).

In both cases, a resiliency-oriented public policy approach would be a substantial improvement on the control-oriented regulation that is not focused on the most meaningful or relevant threats, be they health threats, economic threats, or security threats, from technological dynamism.

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Bedbugs, public policy, and relative risk assessment

September 7, 2010

Lynne Kiesling

Over the past few weeks I’ve been paying some attention to the increasing, and spreading, bedbug infestations in the U.S. I’m not particularly squeamish, but bedbugs are rapacious colony-dwelling critters that can survive for a year without food, feast on the blood of sleeping animals (humans YUM YUM), and colonize easily in mattresses and box springs. They spread due to population density and mobility, and their small size and imperviousness to eradication means that even good hygiene is not enough to prevent infestation.

As infestations move out of hotels and apartment buildings in densely-populated areas like Manhattan and into schools and nursing homes across the country, more and more people are looking for effective ways to eradicate them, short of burning all of an infested person’s bedding and clothing (a decidedly medieval approach!). Pesticides that are currently legal are no longer effective, and techniques like steaming and freezing are not feasible for large items like mattresses and box springs.

In part, this wave of bedbug infestations is an unintended consequence of environmental regulations banning certain pesticides, particularly DDT, that used to be used on bedbugs and were quite effective. Over time, bedbugs have evolved resistance to the pesticides used since the DDT ban.

The bedbug resurgence illustrates the challenges of doing relative risk assessment in regulatory policy. I’ve painted a pretty disgusting, but accurate, picture of a bedbug infestation, but it’s also the case that pesticides have toxicity and duration effects, particularly on vulnerable populations like children and the elderly; however, I would make the normative claim that we want to protect children and the elderly from bedbug infestations too. Which harm is bigger: the harm from a bedbug infestation, or the harm from exposure to chemicals to eradicate the bedbugs?

The uniformity of our environmental regulations do not allow for such relative risk assessments, and the EPA makes the decision on our behalf that the harm from chemical exposure is bigger. What if they are wrong? From my perspective and with my preferences, they are wrong — I think the contagion and propagation effects in addition to the disgustingness of an infestation cranks up the cost of an infestation relative to the cost of a concentrated, careful application of chemicals to eradicate them. Others certainly assess those relative risks differently, because risk preferences are subjective and vary a lot from person to person and place to place. But a uniform, federal-level regulation does not admit for differential costs and benefits across people and places.

Jonathan Adler tackles some of these relative risk assessment issues in a post yesterday, but he focuses more on a specific issue of federalism:

Health officials in Ohio and several other states believe that the risks posed propoxur are outweighed by the severity of the bedbug problem.  The EPA disagrees.  The EPA has the legal authority to preempt state preferences, and is often obliged to under existing statutes, but should it?  Why should the EPA’s assessment of the relevant risk-risk trade-offs override those of the states? …

If local communities wish to strike a different risk balance than the feds, the EPA should not stand in their way.  It is one thing for the EPA to inform local choices, and help clarify the relevant health trade-offs, quite another to impose one set of health preferences on the nation as a whole.  If EPA’s resistance to propoxur was motivated by spillover concerns, such as potential groundwater pollution that could cross state lines, the federal rule would make sense.   But it is not and does not.  This is precisely the sort of environmental problem which state and local preferences should control.

Jonathan also mentions another unintended consequence of such uniform, stringent regulation on indoor pesticides: to deal with bedbug infestations, some people are resorting to pesticides meant for outdoor use, with deleterious health effects.

Sadly, I think Glenn Reynolds has a point when he observes that “The real lesson of the bedbug epidemic is this: Once, the government’s primary role was protecting us from things like that. Now its primary role is stopping us from fixing them.”

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What fixed vs. flexible retail power rates in Texas tell us about wind power in the ERCOT market

January 13, 2009

Michael Giberson

Electric power consumers in (the ERCOT portion of) Texas have many choices when it comes to the electric power retailer they wish to enroll with, and typically each retailer offers a handful of different plans.  Historically speaking, this is a crazy cornucopia of consumer choice not seen anywhere else in the world. Or, seen from another point of view, a lot of data for economists interested in retail electric power not available anywhere else. This post dissects a few bits of that data and offers a preliminary conclusion.

One choice available to many Texas power consumers, but rare elsewhere, is between rates that are variable from month-to-month and rates that are fixed for a longer term.  Typical terms for fixed rate offers are six months and one year, but terms as long as five years are offered.

The primary difference between a variable rate and a fixed rate is whether the customer or the retailer is exposed to the risk of adverse price movements.  A little simple economics leads one to expect that if the retailer is to take on the risk of adverse price movements, the customer will have to pay the retailer to take on the risk. So we’d expect that fixed rate contracts would tend to be higher than variable rate contracts.

And that is just what we see in the offers listed at www.powertochoose.com, the State’s online list (just comparing average offered fixed rate deals to average offered variable rate deals). For example, in the Houston area the average rate for fixed price offers was 14.04 cents/kwh and the average rate for variable price offers was 13.60.  In Dallas, fixed price offers averaged 13.35 cents/kwh and variable price offers averaged 13.03.

But elsewhere in north Texas, specifically the AEP North Texas distribution service territory, the average rate for fixed price offers was 12.7 cents/kwh and the average rate for variable prices offers was 12.8 cents/kwh. So, apparently in parts of north Texas, electric retailers in effect are willing to pay consumers a little bit in exchange for taking on price risk.

Crazy, right?

Well, not exactly.  A fixed rate offer transfers the exposure to both adverse and beneficial price movements.  If a retailer expects prices to fall (relative to the current market expectations), then it would want to encourage customers to lock in at current rates; if the risk of a price movement down is larger than the risk of a price movement up, and retailers are less risk-averse than individual consumers, then retailers would be willing to pay consumers to take on the risk.

And why might retailers in certain parts of north Texas expect prices to fall? Might it be access to large quantities of wind power that sometimes can’t reach Dallas or Houston due to transmission limits – sometimes such large amounts of wind that prices in the ERCOT west region go negative?

I think so.

Admittedly, simple averages of offered fixed and variable rates provide only the coarsest of indicators of what is going on. Maybe more sophisticated analysis makes the anomaly disappear. But at first glance, it looks like another market indicator of the temporary excess supply of subsidized wind power in west Texas.

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