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.This research was supported by the University of California, Los Angeles, Subcontract No. KS59081-0 to Oregon Research Institute.This paper was stimulated by my participation in Risk Benefit Methodology and Application, a conference held September 21–26, 1975, in Pacific Grove, California, and chaired by Dr. D. Okrent. Many of the ideas expressed could be attributed either directly or indirectly to a variety of conference participants. I would like to particularly thank Philip Bereano, Joseph Coates, Barbara Combs, Ward Edwards, Lewis Goldberg, Paul Hoffman, Jack Hirshleifer, Robert Kates, Sarah Lichtenstein, Joanne Linnerooth, David Okrent, Leon Rappoport, Peggy Roecker and Paul Slovic for help in stimulating and clarifying my thinking. The title is borrowed in part fromZen and the Art of Motorcycle Maintenance by Robert Pirsig (New York: Bantam, 1974) where some related lines of thought are developed.