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Too Safe?

Sep 13, 2011 • Behavioral Economics, Economic Debates, Government, Households, Macroeconomic Measurement, Regulation, Thinking Economically • 200 Views    No Comments

Assume for a moment that you have to decide whether to install body scanners at every airport in the U.S. Knowing a decision to proceed will make everyone safer, you say, “Yes.”

But, what if you first were told that there was a 1 in 3.5 million chance that an act of terrorism will kill you or someone you know? However, installing the scanners will make everyone safer by reducing that probability. Your decision?

Here, here, and here, a thought-provoking 3-part series in Slate discusses why we need more cost/benefit analysis when we decide how much to spend on homeland security.

Perhaps this Daily Beast article displays how some municipalities are inadvertently engaging in their own cost/benefit risk assessment.

The Economic Lesson

When you are very hungry, the first chocolate chip cookie you eat is delicious. After that, though, each additional cookie provides less and less extra pleasure. Getting less extra satisfaction from each additional unit is called diminishing marginal utility.

Similarly, initially implementing a security infrastructure at airports would have provided a considerable increase in safety. The question, though, is where diminishing marginal utility sets in.

An Economic Question: Slate tells us that homeland security is a $690 billion federal budget item. Citing opportunity cost, what is the additional expense?

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