A recent paper by Chao Chen, Genserik Reniers, Nima Khakzad, and Ming Yang discusses safety economics. Safety economics is concerned with the costs of safety measures, and an important objective is to minimize the sum of two costs: (1) the expected cost of the harms due to accidents in the future and (2) the current and future cost of safety measures. Safety economics is a tool for making "decisions that are as good as possible (or 'optimal')" in order to both optimize the use of resources and maximize safety. The paper discusses the importance of cost modeling, which includes direct costs, indirect costs, and "non-economic costs" that need to be monetized. The value of statistical life and willingness to pay are mentioned in this context.
A common approach in safety economics is risk-based safety optimization, which is a type of risk management process. This includes hazard identification, risk analysis, risk evaluation (i.e., is the risk acceptable), and risk mitigation. The last step is accomplished by safety cost optimization, which evaluates the costs of the different safety strategies and selects the one with minimal cost.
The paper also discusses the minimal total safety cost approach (which considers both the safety strategy cost and the potential accident cost), cost-benefit analysis, cost-effectiveness analysis, multi-objective optimization, and game theory approaches.
To me the variety of approaches suggests that one must first engage in metareasoning to decide which decision-making process should be used. Moreover, all of the approaches require human input in the form of setting thresholds (for risk acceptance criteria or cost-effectiveness ratios), weighing criteria, and making tradeoffs. In practice, as with many decision models, a "decision calculus" (Little, 1970) may emerge in which the decision-maker asks the analyst to "find the solution," but these two people iterate as the decision-maker asks "what if?" in response to the results that the analyst generates.
Finally, the paper's focus on minimizing costs suggests that safety economics is based on substantive rationality, in which a decision-maker should choose the optimal alternative (Stirling, 2003). Because bounded rationality better describes human decision-making, approaches that focus on finding satisfactory (not necessarily optimal) solutions may be more practical (Simon, 1981).
Cited sources:
Chen, Chao, Genserik Reniers, Nima Khakzad, and Ming Yang, "Operational safety economics: Foundations, current approaches and paths for future research," Safety Science, Volume 141, 2021.
Little, John D.C., “Models and managers: the concept of a decision calculus,” Management Science, Volume 16, Number 8, pages B-466-485, 1970.
Simon, Herbert A., The Sciences of the Artificial, second edition, The MIT Press, Cambridge, Massachusetts, 1981.
Stirling, Wynn C., Satisficing Games and Decision Making, Cambridge University Press, Cambridge, 2003.
Image source: https://www.gov.uk/government/news/venues-required-by-law-to-record-contact-details
