ISET Economist Blog

The Safety Thinking Paradox
Thursday, 26 January, 2012

Please have a look at the above photo of the beautiful Kura River with the Sameba Cathedral in the background. Now, contemplate the picture for another 10 seconds and ask whether something suspicious is part of the scenario. Have you recognized it? Right, there are no rescue ladders at the waterside edges. If someone falls into the water, there is no way to get out again. The picture shows just a cutout of the view, but when standing on Saarbrucken Bridge, looking down at the river, you will see no possibilities to get out of the water anywhere! About 300 meters away, there is some metal scaffold installed at the waterside edge, potentially saving the life of somebody who, for example, was pushed into the water by some rowdies in the park strip next to the Kura. Yet this scaffold is fixed well above the water level and I am not sure if you can reach it when swimming. Furthermore, if you are in the water at night time, you will not see that structure, and the water may be so cold that swimming 300 upstream requires considerable fitness.

Before I go on with my plea for safety thinking, let me define what I mean by that term. Safety thinking is definitely not pessimism. A pessimist is someone who expects negative scenarios to occur. A safety thinker, on the other hand, is someone who does not expect the negative scenario but is prepared for it, even if its unlikeliness is not denied. A safety thinker will take precautions also for the improbable case.

Note that usually, the implementation of safety measures is not particularly costly. Installing metal ladders that lead out of the water every 50 meters is well within the financial capabilities of a city like Tbilisi. The same holds true for many other striking examples. Construction site safety is but a joke in Tbilisi. Not long ago, there was a major construction site on the square one enters when leaving the Marjanishvili metro station. Huge excavators, cranes, and all kinds of other scary construction vehicles were operating on the square, and pedestrians had to find their way through this turmoil. There was neither a bypass nor a barrier that separated pedestrians from the construction site. At one point, hundreds of people had to cross a trench via a 50cm plank, and an old woman was afraid to go ahead and blocked the way. A shameful scene which lasted until somebody jumped into the trench (which had a depth of about a meter and was very muddy) and gave her a hand.  It wouldn’t increase the cost of building in Tbilisi if one would obligate construction companies to assign pedestrian bypasses and set up safety barriers. Given the many police officers patrolling in Tbilisi’s streets, it wouldn’t yield additional costs to enforce such standards either. Regarding car traffic in Tbilisi, you find tons of similar examples.

My impression is that the development of safety thinking is positively correlated with the development of an economy. This is a paradox, as expected utility theory would predict that risk aversion goes down when the wealth goes up (or, stating it reversely: the less wealth I possess, the more risk-averse I should be). Indeed, this directly follows from the law of diminishing marginal utility: The more I have of something, the less I value an additional unit of that something. An additional million dollars is more worth to a pauper than it is to Bill Gates. Conversely, this means that losing something is the more painful the less one possesses.  However, all my experience says the opposite: relatively poor people take high risks by neglecting safety standards.

Interestingly, the Prospect Theory of Kahneman and Tversky does not give rise to this paradox, as the point of reference is not the absolute wealth level, but the status quo of the decision-maker. Dear reader, if you have an idea for a measurable variable that could serve as a proxy for safety thinking, please contact me. I would like to check empirically whether safety thinking is indeed negatively correlated with the per capita GDP. We could write a joint paper!

I agree that some safety regulations are costly. Yet in many of these cases, the gains obtained through the additional safety out measure the cost. For the one part, there is a direct return from safety standards as unlikely events do occur. If somebody falls into the Kura close to Saarbrucken Bridge, a case which probably has happened more than once since it was built, the economic value of this person may be much greater than the cost of the iron ladders. Yet not only those people directly harmed by a lack of safety measures bear costs. When things go wrong, being unprepared causes even higher reputational damages. Due to the incompetence of the Costa Concordia’s crew to handle their ship’s evacuation, the reputation of Costa Cruises and their mother Carnival Cruises is almost irreversible wrecked. Maybe even the reputation of the Italian seafaring as a whole is negatively affected, and perhaps the Costa incident even contributes to reservations people have against all Italian products. Clearly, the direct economic cost of the negligence of safety may be paramount. To give another example, it seems likely that without Chernobyl, the revival of nuclear energy in the new millennium would have made the Russian nuclear industry flourish. However, after Chernobyl, nobody wants to have Russian nuclear power plants anymore. Partly due to the bad reputation of Russian nuclear technology, I am not the only one who is terrified by the Metsamore power plant, operated less than 180 kilometers away from Tbilisi (and just 36 kilometers away from Yerevan, a city with more than one million inhabitants). Some believe this to be the “world’s most dangerous nuclear power plant”.

However, equally relevant to the direct benefits from increased safety standards is its impact on the investor climate. If the safety thinking in a population is just poorly developed, financiers will be reluctant to put their money into, say, a production plant. They rightfully fear that the workers will mess up the factory. Far from being an investor, let me illustrate the point with one of my notorious Tbilisi experiences. One of the candidate apartments I visited in Tbilisi was on the 11th floor, but the elevator was looking so extremely unreliable that even my apartment agent, who in general was not afraid of anything, preferred to walk upstairs. The staircases, as well as the upper stories of the building, were still in a state of construction (possibly having been in that state for quite a while), and the elevator was a provisional installment obviously used primarily for moving building materials to the ongoing construction at the top of the building. The lift shaft, which was in the middle of a spiral staircase, was separated from the surrounding stairs mainly with cardboard, which was attached to the stair railing with wire. Electric cables were hanging out of this structure everywhere. Although we had a look at the apartment (whose interior was surprisingly cozy), it was clear from the start that I was not going to rent it.

One might advise the construction entrepreneur, who wants to sell or rent out these apartments, to not completely neglect any safety standards. It would just make the business more profitable.

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.