Decision Science and Social Risk Management: A Comparative Evaluation of Cost-Benefit Analysis, Decision Analysis, and Other Formal Decision-Aiding Approaches

Economists, decision analysts, management scientists, and others have long argued that government should take a more scientific approach to decision making. Pointing to various theories for prescribing and rational­ izing choices, they have maintained that social goals could be achieved more effectively and at lower costs if government decisions were routinely subjected to analysis. Now, government policy makers are putting decision science to the test. Recent government actions encourage and in some cases require government decisions to be evaluated using formally defined principles 01' rationality. Will decision science pass tbis test? The answer depends on whether analysts can quickly and successfully translate their theories into practical approaches and whether these approaches promote the solution of the complex, highly uncertain, and politically sensitive problems that are of greatest concern to government decision makers. The future of decision science, perhaps even the nation's well-being, depends on the outcome. A major difficulty for the analysts who are being called upon by government to apply decision-aiding approaches is that decision science has not yet evolved a universally accepted methodology for analyzing social decisions involving risk. Numerous approaches have been proposed, including variations of cost-benefit analysis, decision analysis, and applied social welfare theory. Each of these, however, has its limitations and deficiencies and none has a proven track record for application to govern­ ment decisions involving risk. Cost-benefit approaches have been exten­ sively applied by the government, but most applications have been for decisions that were largely risk-free.

1. Social Risk Management.- Nature of Risk.- Meaning of Risk.- Character of Existing Risks.- Components of the Risk-Generation Process.- Hazards.- Exposures.- Effects.- The Role of Government in Risk Management.- Arguments for Regulation.- Government Roles and Alternatives for Risk Regulation.- Complexity of Social Risk Decision Making.- Limited Knowledge.- Hazards.- Exposures.- Effects.- Impact of Regulatory Actions.- Risk Perception.- Social Consent.- The Existing Risk-Management System.- Participants.- Congress.- Regulatory Agencies.- Courts.- Federal Health and Safety Regulations and Related Government Initiatives.- Balancing Statutes.- Technology-Only Statutes.- Health-Only Statutes.- Executive Orders and Legislative Proposals.- A Taxonomy of Risk Problems.- 2. Decision-Aiding Approaches.- Nature of Decision-Aiding Approaches.- Definition of a Decision-Aiding Approach.- Objective versus Subjective Probability.- Characteristics Common to All Approaches.- Decomposition.- Modeling.- Iteration.- Quantification.- Decision-Making Theories.- Cost-Benefit Theory.- Decision Theory.- Social Choice Theory.- Differences among Decision-Making Theories.- Decision-Aiding Approaches.- Cost-Benefit Analysis Approaches.- Decision Analysis Approaches.- Applied Social Welfare Theory Approaches.- A Comparison of the Procedures Used in Decision-Aiding Approaches.- Specifying and Characterizing Alternatives.- Decision Criteria.- Outcome Variables.- Valuing Outcome Variables.- Market-Based Procedures.- Utility-Based Procedures.- Valuing Human Life.- Valuing Outcomes over Time.- Models.- Models for Characterizing the Source of Risk.- Models for Exposure Processes.- Models for Effects Processes.- Cost Models.- Procedures for Quantifying Uncertainty.- Procedures Adopting an Objective View of Probability.- Procedures Adopting a Subjective View of Probability.- Procedures for Developing Probability Distributions of Decision Outcomes.- Characterizing and Distinguishing Decision-Aiding Approaches.- 3. Criticisms and Limitations of Decision-Aiding Approaches.- Fundamental Criticisms.- Impossibility of Finding a Socially Optimal Decision Rule.- Destruction through Decomposition.- Inherent Incompleteness.- Inability to Account for the Costs of Irreversibility.- Operational Criticisms.- Omissions and Inaccuracies.- Difficulty of Measuring Benefits and Costs.- Assessment, Modeling, and Analysis Bias.- Propensity Toward Interference by the Analyst.- Susceptibility to Manipulation.- Susceptibility to Misuse and Misinterpretation.- Institutional and Political Incompatibilities.- Incompatibility with Principles of Democratic Decision Making.- Incompatibility with Constitutional and Legal Principles.- Incompatibility with Organizational Structure and Processes.- Incompatibility with Social Norms.- Ethical Concerns.- Conflicts with Distributional Equity.- Intergenerational Concerns.- Promotion of Anthropocentric Values.- 4. Comparative Evaluation: Summary and Conclusions.- Criteria for Evaluating Decision-Aiding Approaches.- Role and Professed Value of Approaches.- Evaluation Criteria.- Comparative Evaluation.- Logical Soundness.- Completeness.- Accuracy.- Practicality.- Acceptability.- Selecting a Decision-Aiding Approach.- Concluding Observations and Comments.- Notes.- References.- Appendices: Applications of Decision-Aiding Approaches.- A. A Cost-Benefit Analysis of Mobile-Source Sulfur Oxide Emission Control.- Decision Situation.- Background.- Analysis.- Specification and Characterization of Alternatives.- Decision Criterion.- Outcome Measures.- Estimation of Costs.- Estimation of Benefits.- Impact on Health.- Impact on Visibility.- Valuation of Benefits.- Valuing Health Effects.- Valuing Visibility.- Sensitivity Analysis of Benefit Estimates.- Cost-Benefit Comparison.- Epilogue.- Notes to Appendix A.- References to Appendix A.- B. A Decision Analysis of Alternative Government Policies for Commercial Cryptography.- Decision Situation.- Background.- Analysis.- Specification and Characterization of Alternatives.- Decision Criterion.- Outcome Measures.- Deterministic Analysis.- Decision Model.- Base-Case Model Results and Sensitivity Analysis.- Probabilistic Analysis.- Crypto Product Attractiveness.- Computer-Related Crime Rate.- Social Contingency Scenario.- Tree Analysis.- Solution of the Decision Tree.- Informational Analysis.- Epilogue.- Notes to Appendix B.- References to Appendix B.- C. An Application of Applied Social Welfare Theory to a Space-Mission Planning Decision.- Decision Situation.- Background.- Analysis.- Specification and Characterization of Alternatives.- Decision Criteria.- Rank Sum Collective Choice Formulation.- Nash Bargaining Model Formulation.- Social Welfare Formulation.- Supradecision-Maker Formulation.- Derivation of Science Team Preferences.- Collective Choice Analysis.- Rank Sum Choice Formulation.- Nash Bargaining Model Formulation.- Social Welfare Formulation.- Supradecision-Maker Formulation.- Comparison of Results.- Epilogue.- Notes to Appendix C.- References to Appendix C.- Index of Names.- Index of Subjects.