The Ostrich Paradox Behavioral Risk Audit Matrix

by Robert Meyer and Howard Kunreuther

Bias	Impact on Beliefs	Manifestation	Remedy
Myopia: a tendency to plan over short future horizons	Focus on short-term horizons in evaluating flood loss mitigation options	Failure to invest in cost-effective measures due to high up front costs	Couple long-term loans with insurance premium reductions to spread the up front cost over time
Amnesia: a tendency to base decisions on recent experiences	Fading memory of past floods and resulting damage	Failure to renew annual flood insurance policy	Automatically renew multiyear policies with constant annual premiums
Optimism: a tendency to underestimate the likelihood of personal harm	Underestimation of the probability of a flood	Tendency to see flood insurance and mitigation as overly expensive relative to benefits	Stretch time horizon so individual perceives the probability of a disaster to be closer to the scientific estimate
Inertia: a tendency to choose the status quo	A preference for the status quo in protective investments; for floods, doing nothing	Reluctance to purchase insurance or invest in loss-reduction measures (e.g., storm shutter); procrastination in decision making	Make protection the default: make insurance a condition for obtaining a mortgage, or part of a bundled policy the resident can opt out of
Simplification: a tendency to pay attention to only a few relevant factors	Limited consideration of information available about flood risk	Ignorance of the flood risk of a location; lack of knowledge of possible remedies	Implement communication programs that make it easier for residents to understand their flood risk, providing examples of the consequences of a flood
Herding: a tendency to make decisions by basing choices on the observed actions of others	Tendency to base insurance decision on whether friends and neighbors have flood policies	Low rates of take-up at the community level	Implement communication programs that emphasize social norms of safety; offer seals of approval that enhance the social status of protective investments