Where’s the fun in that? On thrill and liability in extreme sports

Abstract Extreme sports like solo rock climbing and BASE jumping are experiencing a boom in popularity, yet we are only starting to understand why they attract people. Individuals’ decisions to engage in these risky activities has long posed a challenge for utility theory. Contrary to public perception, most adventure sport participants are not reckless or solely motivated by adrenaline rush. They are disciplined, investing years of intensive training to understand the environment in which they operate and to develop the skills necessary to master the risky challenges. In this paper we develop a theory that distinguishes between the endogenous risk inherent to the sport and determined by participants’ own choices, and exogenous or uncontrollable background risk. It is well documented that while inherent risk lures individuals to these extreme sports, participants fear uncontrollable dangers as much as anybody else. This allows us to decompose participants’ utility into the thrill component of the activity and other aspects of the sport such as exercise and time outdoors. The same framework delivers a value of statistical life (VSL) that is risk-type dependent. Because participants weigh safety against the activity’s inherent risk, VSL is identified by their marginal spending on self-protection rather than by the level of risk they accept, so their tolerance for controllable risk does not imply that they value life cheaply. With this decomposition at hand, we study the optimal allocation of risk between participants and providers of these sports. We show that the modern legal doctrine of assumption of risk, in which providers are liable for their own negligence, but not for accidents stemming from the inherent riskiness of the activity, is more efficient than alternative arrangements. We illustrate our results with a calibrated example.