WP 2020-06 Risk Perceptions in the Virtual Wilderness: An Application to Wild Fires
AUTHORS: Glenn W. Harrison, Jared M. Johnson and E. Elisabet Rutström
ABSTRACT: In economic decision making most subjective probabilities are formed in a compound manner, through the interaction of multiple attributes of events, each of which have likelihoods that are unknown to various degrees. We consider how subjectively formed risk perceptions are affected by the experience of the decision maker and compare the subjective probabilities of experts to non-experts. Our methodology relies on virtual reality simulations of physical cues of the risk, allowing us to bring together the natural stimuli of the field and the control of the laboratory. We examine a risk with serious economic consequences: the management of wild fire risk. This is a natural setting where the risk is compound, depending on many random physical processes, and where the formation of risk perceptions necessary for risk management is therefore realistically complex. We find that experts are not always better than non-experts at estimating the risks. Experts appear to be locked in by their strong priors from experienced stimuli outside those presented in our naturalistic virtual reality. With a global environment that produces increasingly extreme weather outcomes, there is value in training experts to be less anchored in prior experiences.