Human brains are fundamentally unable to distinguish between a 'false alarm' and a 'missed warning' when judging signal quality.
March 31, 2026
Original Paper
Preferences for Warning Signal Quality: Experimental Evidence
SSRN · 6493138
The Takeaway
Rational logic dictates we should value a signal that prevents a catastrophe more than one that just avoids a minor annoyance. However, this experiment reveals a mental shortcut where people treat all errors as identical, leading them to consistently overpay for low-stakes warnings and dangerously under-respond to high-stakes ones.
From the abstract
We use a laboratory experiment to study preferences over false-positive and false-negative rates of warning signals for an adverse event with a known prior. We find that subjects decrease their demand with signal quality, but less than predicted by our theory. There is asymmetric under-responsiveness by prior: for a low (high) prior, their willingness-to-pay does not fully adjust for the increase in the false-positive (false-negative) costs. We show that neither risk preference nor Bayesian upda