Adaptive Responses to Chemical Labeling: Are Workers Bayesian Decision Makers?

Abstract

A fundamental issue in the economics of uncertainty is how individuals process information and make choices under uncertainty. In a recent analysis of the findings on risk perception, Kenneth Arrow (1982) concluded that the evidence regarding individual rationality was, at best, quite mixed. A prominent example of apparent irrationality of actual consumer behavior is that consumers, who presumably are risk averse, have failed to purchase heavily subsidized federal flood insurance. In the case of the market for hazardous jobs, which is the focus of this study, Viscusi (1979) found that workers' risk perceptions were positively correlated with the industry risk and that workers who perceived job risks received compensating wage differentials. Nevertheless, workers in high risk jobs displayed behavior consistent with an adaptive response in which workers accept jobs whose risks are not fully understood, learn about these risks based on their on-the-job experiences, and then quit if these experiences are sufficiently unfavorable given the wage for the job.