Biased assessments of risk can perversely influence how we prepare for and respond to crises, business choices, and the political process. When Internet stocks have done very well, people might well buy Internet stocks, even if by that point they’ve become a bad investment. Or suppose that people falsely think that some risks (a nuclear power accident) are high, whereas others (a stroke) are relatively low. Such misperceptions can affect policy, because governments are likely to allocate their resources in a way that fits with people’s fears rather than in response to the most likely danger.
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