It won't happen to me: The behavioral impact of extreme risks

Many life activities imply a participation in a gamble that involves rare events. The classical study of human decision-making tried to address the natural decisions exemplified above by the distinction between judgment (estimating probability) and decision processes. Basic studies of human judgment processes have compared intuitive probability estimates to objective probabilities. The coexistence of overestimation of small probabilities and overweighting of rare events appears to suggest that people are likely to exhibit extreme oversensitivity to rare events in decisions under uncertainty. This chapter summarizes experimental studies that examine the robustness of the 'it won't happen to me' effect. It presents new experiments that compare alternative explanations for the observed bias. The chapter provides empirical demonstrations of some implications of the 'it won't happen to me' phenomenon to different domains of decisions under uncertainty that involve extreme risks. A natural way of receiving information about 'forgone payoffs' in everyday life is by being exposed to other people's decisions.