Risk is a phenomenon every one of us encounters daily, anywhere we go. However, not everyone knows how to properly deal with its consequences and implications. Just look at the large number of people who fritter away their money in casinos. Do they fail to notice the expensive décor when they set foot in such an establishment, and do they not realize that it is their money that pays for it? Why do so many homeowners refuse to insure their property against earthquakes even though all their belongings are at risk? And why—the height of absurdity—do many citizens insure their belongings against theft and burglary yet have no qualms whatsoever about risking their money week after week on lottery tickets?

One reason people pursue risky activities, be it bungee jumping, delta gliding, or gambling, willingly and without much thought, is that these adventures promise adrenaline surges. Otherwise, people do not spend a great deal of time analyzing the dangers when they embark on such activities. One explanation of why they do, or rather do not, ponder the risks is that statisticians find it very difficult to convey the value of their research to laypeople. So severe does the Royal Statistical Society in England consider the problem that its members decided to devote an entire edition of their journal, Statistics in Society, to the topic: How can the wider public be informed of the true extent of the risks involved?

Actually it would be quite simple to calculate the so-called expected values of risky activities and, at the push of a button, obtain the key figure that should give the correct decision. All one has to do is multiply the amount one fears losing by the probability of an inclement event occurring. Unfortunately, more often than not, one or both of the two factors are not easily expressible in nu-

merical terms. For example, how high is the probability that a pedestrian will be hit by a falling flowerpot? And what, in this case, would be the financial damages? Or what value would one put on the life of one’s child?

But even in cases where damages and probabilities can be quantified to the last decimal place, most people do not want to take any notice. At roulette, for example, all factors are well known. This in no way fazes devoted gamblers, however. They simply ignore the 2.7 percent probability of the ball falling on the zero. They consider roulette a game of luck in which they have a realistic chance of winning. What gamblers tend to forget is that not only the décor of the casino but also the massive profits going into the pockets of the casino owners are financed out of this little zero.

To the public it does not seem to matter whether an event spells gain or loss. The same attitude holds sway over the average citizen in both circumstances. For example, seismologists in Switzerland have calculated that on average the country will be hit by an earthquake measuring 6 or more on the Richter scale every 120 years. But since no one can predict in which year one such event will take place, the actual probability of such a catastrophe hitting Switzerland amounts to about 0.8 percent every year.

Now, take the value of a one-family home, including its contents, which is, say, $500,000, and multiply this value by the probability of 0.8 percent. Would an annual insurance premium of $4,000 be appropriate? Certainly not, since it is not certain that your home will be completely destroyed even if the earthquake happens to be a particularly big one. The relevant question that arises is whether the earthquake of the century will render one in 10 houses or one in a 100 uninhabitable? Assuming the latter case, an annual insurance premium of $40 would be appropriate and fair.

Pessimists who fear that the next earthquake is overdue because the last quake struck in 1855 would, however, be as mistaken as the optimists who opine that surely nothing will happen next year since nothing has

happened since time immemorial. These people belong to the category of oddballs that includes gamblers who believe the outcome of the next spin at the roulette wheel must be red because the ball has fallen on black eight times consecutively.

In public life, much more important and far-reaching decisions need to be made than in private life, where one may merely have to decide whether or not to buy an insurance policy. It is a sad fact, unfortunately, that even politicians do not pay close attention to statistical cost-benefit analyses. Is the expected risk emanating from an atomic plant really so much larger than the number of dead and injured that the mere construction and maintenance of a coal mine or dam might claim? And when President Reagan decided to invest $9 million on research into Legionnaire’s disease, as opposed to only $1 million for medical research on the AIDS virus, was it possible that his decision was influenced by a prejudice against homosexuals?

The truth is that politicians, like anyone else, allow themselves to be swayed by public opinion. Having the coast guard mount a search and rescue operation with large numbers of helicopters and lifeboats to rescue a ship-wrecked fisherman earns the politician of that state many more votes than, for example, straightening out a dangerous curve in the road. In Switzerland it is no different. Huge amounts of rescue equipment are available and ready for use to save the odd mountaineers caught in glacier crevasses. At the same time, dozens of pedestrians may get killed every year in a city when crossing roads simply because there is no budget available to construct over-passes. But it is not always politically correct to ask poignant questions about raw costs and benefits. After all, the Alps are a national treasure to the Swiss. Their accessibility must be safeguarded, costs be damned. All that statisticians can do is provide politicians and managers with the necessary information. It is up to the latter to make the correct decisions.