Tuesday, June 1, 2010

Underestimating Risk and Cost

Good article in today's New York Times Magazine Preview about economic decision making in general and the oil industry in particular. In summary, when an event is difficult to imagine (e.g., the current BP disaster), people tend to underestimate the probability of it occurring; when it's easier to imagine (e.g., a domestic terrorist attack after 9/11), people tend to overestimate the probability. Now add government caps on liability and decision-making can get really skewed, with unreasonable estimates of both event-related probabilities and costs.

The relevance of this decision-making model to the nuclear industry is obvious but we want to focus on something the article didn't mention: the role of safety culture. Nuclear safety culture guides planning for and reacting to unexpected, negative events. On the planning side, culture can encourage making dispassionate, fact-based decisions regarding unfavorable event probabilities and potential consequences. However, if such an event occurs, then affected personnel will respond consistent with their training and cultural expectations.

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