In a model of occupational safety, biased perceptions of risk decrease welfare, which may justify government regulation. Bias is examined empirically by the correlation between subjective and objective risk, the former measured by self-reported exposure to death on the job. The correlation is negligible among workers with no high school diploma, consistent with underestimating risk in more dangerous occupations, and strongest among more educated workers when objective risk is specific to harmful and noxious substances, which in psychological studies rank high in dread. Biased perceptions of risk may also lead to biased estimates of value of statistical life. VSL estimates are negligible across all education levels using the all cause fatality rate, but consistently greater among more educated workers using the fatality rate due to harmful and noxious substances, upwards of $70 million and more. Optimal policy is considered, including an illustrative simulation of a risk ceiling.

Document Type

Working Paper


Spring 5-2024


Compensating wage differentials, value of statistical life, occupational safety, risk perception




Working Papers Series


Economic Policy | Economics | Public Affairs, Public Policy and Public Administration | Public Policy



Additional Information

Working Paper no. 263

The data used in this project are available online: the National Health Interview Survey at, and the Census of Fatal Occupational Injuries at The author has no disclosures to report. For helpful comments, the author thanks Meltem Daysal, Monica Deza, V. Joseph Hotz, Aron Tobias, Mircea Trandafir, Nicolas Ziebarth and seminar participants at the University of Copenhagen and the annual meeting of the Society of Labor Economists. For helpful assistance, the author thanks Ehsan Dowlatabadi.

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.



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