Risk-benefit analysis is the comparison of the risk of a situation to its related benefits.
Exposure to personal risk is recognized as a normal aspect of everyday life. We accept a
certain level of risk in our lives as necessary to achieve certain benefits. In most of these
risks we feel as though we have some sort of control over the situation. For example, driving an
automobile is a risk most people take daily. "The controlling factor appears to be their
perception of their individual ability to manage the risk-creating situation." Analyzing the
risk of a situation is, however, very dependent on the individual doing the analysis. When
individuals are exposed to involuntary risk, risk which they have no control, they make risk
aversion their primary goal. Under these circumstances individuals
require the probabilty of risk to be as much as one thousand times smaller then for the same
situation under their perceived control.
Evaluations of future risk:
- Real future risk as disclosed by the fully matured future circumstances when they develop.
- Statistical risk, as determined by currently available data, as measured actuarially for insurance premiums.
- Projected risk, as analytically based on system models structured from historical studies.
- Perceived risk, as intuitively seen by individuals.
Air transportation as an example:
Hopefully the real risks turn out to be less than the projected risks. Although many people
feel that flying is more risky than driving, statistics show otherwise. Perception of control
is a very important factor that explains why voluntary activities have risks of 100 to 1000 times greater than involuntary activities.
- Flight insurance company - statistical risk.
- Passenger - percieved risk.
- Federal Aviation Administration(FAA) - projected risks.
firstname.lastname@example.org Last updated 10/12/94