Jane, I would assert that reason and logic can “dictate” decisions based on the existence of tools which have been designed to help us with just such problems.

In the field of portfolio management for example, (a type of decision science), it is the job of people in my line of work to advise leaders on how to make such evaluations.

In fact, your post points out examples of some of the critical factors, such as relative risk-aversion bias, probabilities of future states of nature, and downside risk severity.

Well, I hope not. But that’s not rational, I suppose. Given the evidence of sufficient mitigation action being taken…

OTOH: if your goal is to avoid the possibility of incurring devastating financial losses, even by accepting the certainty of a much smaller loss, then it is totally rational to buy insurance. But what if you have a working-class income and have a certain amount of money that can be used to protect you against some possible future loss or to meet real current needs, but not both? Then you have a value judgement to make, just as you did in making the original decision to prefer risk-avoidance over average ultimate savings. The same applies to decisions about playing the lottery, or accepting medical interventions that save a few lives while causing nonfatal harm to many more, or any number of situations in which reasonable people’s goals might conflict. Neither logic nor Reason can dictate which goals we should prefer; they only help us pursue the goals we have settled upon, with the aid of our emotions and values, more efficiently.

Great observation.

This has been the natural state of thinking in our species. Only in the last 350 years has a movement developed which aimed to convert the natural human thinking process to a new method which aims to discard irrationality in favour of an objective scientific method.
A million years of evolution is not going to vanish quite so quickly.
It is notable that even today, a scientist is capable of, for example, running an irrational anti-science blog where right-wing fruitloops and their nutty ideas are courted and rational objective scientists and their science are denigrated.
If a trained scientist can behave like this, what hope for the rest of humanity?

Don’t forget – error bars cut both ways, and this is what the anti-science mob refuses to accept.

A schizophrenic may think he’s rational — but his therapist would not agree. Someone watching their discussion would likely choose sides on this issue. Who’s correct?

So I suggest that planning for ways to mitigate undesirable events that have a (perceived) significant chance of occurring is being rational. Denying that there is any need to address this *in the face of evidence to the contrary* (first- or second-hand) is irrational.

In the U.S., there are laws that compel automobile drivers to purchase insurance even if they are irrational enough to deny that there is significant risk involved in driving. There is too much evidence at hand.

What is the criteria we use for a decision to qualify as “rational”?

Bigfoot & ghost hunters can (and do) plan long term.

The “it can’t happen to us” mentality. Just like AGW deniers.

In this case, we need not worry about the Goldilocks problem; we acknowledge that there exists risk of (great) loss, and so we spend money (in the form of public policy) to mitigate what research indicates has a significant chance of happening.

The deniers are of the camp “I don’t want to buy insurance, I’d rather spend the money on myself.” Short-term thinking, but may have catastrophic long-term consequences.