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The policy consequences of cascade blindness

Published online by Cambridge University Press:  15 November 2018

ADAM ELGA  and
DANIEL M. OPPENHEIMER
ADAM ELGA*
Affiliation:
Princeton University Department of Philosophy, Princeton, NJ, USA
DANIEL M. OPPENHEIMER
Affiliation:
Carnegie Mellon University, Departments of Psychology and Social and Decision Sciences, Pittsburgh, PA, USA
*
*Correspondence to: Princeton University Department of Philosophy, 1879 Hall, Princeton University, Princeton, NJ 08544-1006, USA. Email: [email protected]
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Abstract

One way to reduce waste and to make a system more robust is to allow its components to pool resources. For example, banks might insure each other or share a common capital reserve. Systems whose resources have been pooled in this way are highly prevalent in such diverse domains as finance, infrastructure, health care, emergency response and engineering. However, these systems have a combination of characteristics that leave them vulnerable to poor decision-making: non-linearity of risk; obvious rewards combined with hidden costs; and political and market incentives that encourage inadequate safety margins. Three studies demonstrate a tendency for managers of such systems to underestimate the probability of cascading failures. We describe a series of behaviorally based policy interventions to mitigate the resulting hazards.

Type
Article
Information
Behavioural Public Policy , Volume 5 , Issue 2 , April 2021 , pp. 180 - 201
Copyright
Copyright © Cambridge University Press 2018

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