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DEALING WITH UNCERTAINTY ABOUT RISK IN RISK MANAGEMENT 50 original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. symmetrical; for large inaccuracies, the costs of unnecessary regulatory stringency or public health risk will vary. The social costs from errors in risk estimation would be minimized if mean-value estimates of risk were used. Mean-value risk estimates reflect the weighed average of all possible risk values. The conservative practice of using upper-confidence-bound risk estimates leads to the first-order effect of overinvestment in risk control, but also leads to a lower human health risk. Resource Constraints and Risk Management Are national health and safety expenditures limited in the aggregate, or are they variable, depending on the outcome of many independent risk-management decisions? If risk-reduction expenditures are not limited in the aggregate but are determined on a case-by-case basis, then it is appropriate to consider whether conservatism is protective by considering specific cases. However, if the fraction of GNP allocated for risk reduction is politically constrained, or if some other factor constrains risk management in the aggregate, then the collective effect of risk management decisions is the appropriate basis for evaluating whether conservatism serves a useful purpose. Because risk analysts and agency standard setters generally focus on one risk at a time, the single-risk focus is a natural form of reference. From the perspective of a single-risk management decision, analytical conservatism is protective, but at a price. A conservative risk estimate produces lower risk exposures. Here, the potential costs of large errors appear to be asymmetrical to the regulator. He believes that risk-reduction costs are bounded, and that the uncertain consequences of risk exposures may be much greater than these costs. An additional factor encouraging conservatism is how a regulatory agency's decisions might be judged in hindsight. An overcontrolled risk will probably drop from sight once a decision is implemented and control investments made, despite continuing social costs. But an undercontrolled risk, possibly discovered through the identification of victims, is far more disturbing for a regulatory agency. If risk reductions are limited by resource scarcity, however, the logical regulatory objective is to allocate the scarce resource in a way that maximizes social benefits. Opportunity costs, the value of benefits forgone from possible alternative uses of the scarce resource, become important under these circumstances. Money or regulatory attention spent on one risk is not available for another, so it is important not to waste resources on trivial risks. Here, conservatism is counterproductive, and risks are increased if
