A large part of economic analysis is based on the concept of utility. Utility is, basically, something that people all try to maximize. It's an amalgamation of money, happiness, whatever the heck ever that people individually want. It is assumed that people have complete information about what maximizes their own utility, and probably are equally well informed about what to do to get what they want. They're basically omniscient. This is all complete bullshit.
My favorite example of how people aren't maximizing any kind of utility, because they don't have a clue what is going on, is their ability to access risk. People are afraid to fly, but they drive every day where they would be hard pressed to find a common behavior that is more unsafe. Piles of people freaked out when anthrax hit, when a whopping four people died. People were wearing SARS masks...but I'm not sure how bad an idea that is, in some places masks may be a good idea all the time. The point is people don't have a friggan clue. People from Beverly Hills high seem to have a high rate of cancer, perhaps due to an oil rig next door. How do you even begin to access a risk like this anyway, much less on an individual basis? Now, you can argue that part of "utility" is peoples psychological well being, so their perception of the risk could be more important than the actual risk, but then you'd have to measure people's psychology. Good luck.
I have no point.
Your driving v. flying example is wrong. I hear this one all the time, but the mathematicians are missing the key point about flying: most accidents occur at take-off or landing.
And there is one other oversight: Humans live in realtime.
I drive a lot. Now and then, I come close to an accident. Whenever that happens, my heart races. That's because the risk shoots up suddenly. I calm down when the danger has subsided.
Now consider flying. During the short period of take-off or landing, the risk for the entire flight is compressed. If people are particularly fearful during these seconds, they are NOT -- ABSOLUTELY NOT -- being irrational. The risk of dying per unit time is greater during those seconds than at most times in a car. It's the sheer terror of those seconds of high risk that make people afraid. I've sat next to people with such fears. They are nervous the whole flight, but they are inconsolably terrified during take-off and landing.
I happen to like the excitement. I just wish there were more acceleration at take-off.