The relation between cost-benefit analysis and risk acceptance in regulatory decision-making

Abstract

Risk cannot be avoided completely in modern society. As a society develops, public concerns on reducing risks are elevated, resulting in legislation and executive orders to create agencies that regulate such risks. However, it has been noted that the cost efficiencies of federal regulations are not consistent either within or across regulatory agencies, suggesting a need to establish a solid framework to advance regulatory decision-making in the public interest. In this paper, we utilise cumulative prospect theory (CPT) to investigate risk acceptance reflected in several US federal regulatory policies, specifically in their proposed regulations that address public safety and health issues. Attitudes toward risk are reflected in perceptions of likelihoods and consequences of hazardous events or exposure to hazardous materials. Twenty-two regulations proposed are analysed. The relative standing of risk acceptance reflected in each regulation sheds light on the differences in risk acceptance attitudes.