Cost benefit analysis and the art of motorcycle maintenance

Partially as the result of consumer and environmentalist pressure, proposals for large-scale government and private projects are increasingly coming under the scrutiny of cost-benefit analysis, decision analysis, risk assessment and related approaches. This paper presents a critical overview of such analyses. It discusses (a) their rationale; (b) their acceptability as guides to decision making; (c) the problems such analyses encounter; (d) how they may be misused; and (e) what steps are needed to increase their contribution to society. The discussion is illustrated with a variety of examples, drawn, in particular, from the evaluation of new technologies.Whatever their flaws, such analyses appear to have a critical role in guiding social decision making. It is important, however, for both the analyst and the nonexpert consumer of such analyses to understand the errors to which they are prone in order to maintain a critical perspective. Indeed, the institutionalization of such criticism is essential.Additional research is needed to clarify psychological (subjective) aspects of the analytic process in order to (a) reduce the errors and omissions made by analysts and (b) help policy makers and the public understand the results and the assumptions under which they were reached.

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