Experience with the Consumer Price Index offers lessons for regulatory science.
On March 16, David Wessel of the Wall Street Journal (subscription required) discussed how public perceptions of the rate of consumer price inflation differ — in some cases by a lot — from what the experts say. Experts who assess health, safety and environmental risks often bemoan a similar discrepancy between lay and expert belief. Many articles and books have been written on the subject of risk perception, and there is now a cottage industry of scientists who specialize in trying to explain it.
Wessel zeroes in the problem:
Write about inflation, and readers are quick to complain that the U.S. Government’s consumer-price index fails to capture the reality of rising prices.
Many people believe the government’s inflation estimates are way too low, and some darkly offer various conspiracy theories in hopes of justifying their disbelief. In short, it’s just like risk assessment..(Also like risk assessment, CPI experts say the index actually overstates the actual inflation rate.)
As Wessel points out, government inflation estimates reflect weighted averages of consumption market baskets. So for the average consumer — or rather, the consumer whose personal shopping cart is identical to the market basket — estimates of the CPI are very accurate. The perception problem arises because most — no, all — consumers depart from that market basket one way or the other.
The analogy to risk assessment is uncanny. Estimates of “average” health risk don’t accurately represent risks encountered by people who are highly exposed or unusually susceptible. Of course, the converse is true, too: upper-bound estimates of health risk don’t accurately represent what more typical people experience. Consumers with high medical bills, college tuition payments, or skyrocketing housing rents face unusually “risky” prices.