Chapter 20: Risk Regulation and Precaution
Dieter Pesendorfer Controlling risks is a concern central to any regulation. Specific levels of risk taking and uncertainties are inherent to all social situations and decision-making, including nondecisions. Yet individuals and collective actors react in different, culturally framed and inconsistent ways to whatever they identify as safe enough or too dangerous. Reactions to harm, threats and dangers can be perceived, for example, as rational, irrational, appropriate, insufficient or ignorant depending on individual assumptions and abstract commitments to fundamental values which are by definition open for interpretation. It is common sense that risks and corresponding alternative decisions are related to possible gains and losses. Risk regulation should try to avoid, to minimize or to reduce the most severe harm in a rational, efficient and effective manner. As risk taking is a precondition for and inherent to development and progress and always includes the possibility of failure, the right level of regulation is crucial, and the overall design in risk regulation establishes path dependencies of economic development and innovation and therefore contributes to the overall level of risk in a society. With nascent capitalism a new climate of risk taking has emerged since the Renaissance. Insurance business and risk management based on a rational-mathematical analysis of the probability of certain kinds of harm from alternative decisions were established (Bernstein 1996; Jaeger et al. 2001). Driven by rapid societal and economic transformations the decades since the 1960s then brought about strong concerns, particularly in rich Western societies, with insufficient regulation of all kinds...
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