Risk-Benefit Analysis

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:

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.

Compiled by

Eric Schactman eds1@cec.wustl.edu Last updated 10/12/94