Risk-Benefit AnalysisRisk-benefit analysis is the comparison of the risk of a situation to its related benefits. Exposure to personal risk is recognized as a normal aspect of everyday life. We accept a certain level of risk in our lives as necessary to achieve certain benefits. In most of these risks we feel as though we have some sort of control over the situation. For example, driving an automobile is a risk most people take daily. The controlling factor appears to be their perception of their individual ability to manage the risk-creating situation. Analyzing the risk of a situation is, however, very depend-ent on the individual doing the analysis. When individuals are exposed to involuntary risk, risk which they have no control, they make risk aversion their primary goal. Under these circumstances individuals require the probability of risk to be as much as one thousand times smaller then for the same situation under their perceived control.

Evaluations of future risk:

1. Real future risk as disclosed by the fully matured future circumstances when they develop.

2. Statistical risk, as determined by currently available data, as measured actuarially for insurance premiums.

3. Projected risk, as analytically based on system models structured from historical studies.

4. Perceived risk, as intuitively seen by individuals.

Air transportation as an example:

Flight insurance company - statistical risk.

Passenger - percieved risk.

Federal Aviation Administration (FAA) - projected risks.

Hopefully the real risks turn out to be less than the projected risks. Although many people feel that flying is more risky than driving, statistics show otherwise.

Perception of control is a very important factor that explains why voluntary activities have risks of 100 to 1000 times greater than involuntary activities.