The subjective business of risk assessment

A short segway into how poor we are at assessing risk, a topic that I find fascinating in itself. The table below shows how much saving one life-year of human life costs using various means [1].

InterventionCost per life-year saved [MSEK]
Reduction of radon in new houses0.1
Improvement of nuclear power plants64.0
Air-bags in new cars31.4
Traffic lights in 4-way crossings in cities241.3
Minimum age for buying tobacco0.1
Battery powered fire alarms in homes~0.0
Reduction of electro-magnetic fields near powerlines (in Bergshamra, Sweden)932.0
How we assess risk.

A lot can be said about the reasons for the huge variation apparent in the table. Suffices here to say that, whatever the reasons, they probably apply to the assessment of other types or risks too, including business risks.

Guessing about the future (risk) is admittedly hard but there are methods that make our guess-work at least a little bit more structured and makes us aware of of the weaknesses in our assessments. For more on risk assessment, see [2].


[1] The Cost-Effectiveness of Lifesaving Interventions in Sweden. A. L. Joakim, J. Ramsberg and Lennart Sjöberg. Center for Risk Research, Stockholm School of Economics. Sweden
[2] Risk assessment on Wikipedia

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