Regardless of how Japan's nuclear accident unfolds, one thing is clear: It's already inflicted mass damage on the psyche of citizens living in countries with nuclear energy -- which is to say, most of the developed world.

The fear of nuclear fallout that Japan must be facing is unspeakable, and it shouldn't be trivialized. But when small boxes of potassium iodide are being hawked on eBay for $5,000 half a world away in the United States, you know we're knee-deep in sheer panic.

The media has spent the better part of last week fanatically calculating the odds of a nuclear accident in the U.S. and vividly imagining the fallout. Maps showing nuclear locations around the U.S. have been plastered on news sites, just in case you suddenly became curious.                   

This isn't surprising. The media specializes in fear. But the most reasonable response to this panic may resemble what Wall Street Journal columnist Matt Ridley pointed out this week:

however high the death toll at Fukushima climbs, it is unlikely to match the casualties in the fossil-fuel industry. In the last year alone, 29 people died in a New Zealand coal mine, 11 on a Gulf oil rig and 27 in a Mexican pipeline explosion. A human-rights activist has estimated that as many as 20,000 people die in Chinese coal mines every year.

You can take this a step further. The most notable nuclear accident, Chernobyl, killed 9,000 people according to official UN estimates (other estimates put it closer to 100,000). Yet in the U.S. alone, an estimated 13,000-24,000 people die every year from the effects of coal-burning power plants. On average, 170 die annually from accidental carbon monoxide poisoning linked to non-automotive appliances. In his book The Science of Fear, Daniel Gardner notes:

People tremble at the sight of a nuclear reactor but shrug at the thought of having an X-ray -- even though X-rays expose them to the radiation they are terrified might leak from a nuclear plant. Stranger still, they pay thousands of dollars for the opportunity to fly somewhere distant, lie on a beach, and soak up the radiation emitted by the sun -- even though the estimated death toll from the Chernobyl meltdown (9,000) is actually quite modest compared to the number of Americans diagnosed with skin cancer each year (more than one million) and the number killed (more than 10,000).

The argument doesn't have to be that nuclear power is safe. That's clearly not always the case. But the safety record of nuclear energy isn't half bad when weighed against the alternatives, let alone our common lifestyle choices.

Why, then, does it cause so much fear?

Paul Slovic began asking that question decades ago. Slovic, who runs the Decision Research institute, has spent his career studying how we judge risk. His research shows that people overestimate risk when a danger has a handful of qualities, including:

  1. Catastrophic potential: Lots of people dying at once, rather than in small numbers over time
  2. Familiarity: A risk that isn't common knowledge.
  3. Understanding: A sense that something isn't well understood by experts.
  4. Personal control: A sense that harm is outside our control.
  5. Voluntariness: Can do harm even when you don't voluntarily put yourself in danger.
  6. Children: Mention the word children, and panic multiplies.
  7. Victim identity: As Stalin said. "One death is a tragedy; 1 million is a statistic."
  8. Origin: Manmade risks are viewed as more dangerous than natural disasters.

The opposite of this list cause people to underestimate risk. When a well-known natural hazard kills a small number of people over time -- say, poor diets or sun exposure -- it's unlikely to cause much hype, even if in total it ends up harming far more people than, say, nuclear accidents.

So what does this have to do with investing?

Many of the characteristics on Slovic's list also fit overhyped risks of investing. Too much focus is placed on investment "risks" that pose little to no threat but are perceived as dangerous because they (1) erase lots of wealth suddenly, rather than slowly over time, (2) aren't understood by experts, and (3) sit outside investors' control. On the other hand, many serious financial risks are ignored because they accrue slowly, are well documented, and in our control.

Here's an example. Consider last year's May 6 Flash Crash and management fees on mutual funds.

The Flash Crash has been the subject of an untold number of fear-based news, SEC investigations, and the force behind hordes of investors fleeing the market. It scared investors clueless. It was fast, furious, and mysterious. It will be given a place in history as an example of market risk. Yet it harmed very few people. The entire ordeal was over in a few minutes. Most didn't learn of the Flash Crash until after the fact and would be better off having never heard about it at all.

Then there are mutual fund fees. Many mutual funds charge annual fees of 2%, 3%, 4%, or more for investment products that are essentially market-tracking index funds. These fees can rob tens, even hundreds, of thousands of dollars out from a fairly modest account over the course of a lifetime. They're a serious risk to your financial health. Yet they're almost never discussed in the media-- certainly not in a fear-striking way -- and overlooked even by investors capable of understanding their wrath.

And how many of us pore obsessively over every market tick, yet rarely think about issues like whether our stocks would be better off in a tax-saving IRA -- something that really matters?

You can go on and on. Just as the remote risk of nuclear harm blinds the very real threat of other dangers, what we tend to worry about in investing is trivial compared with risks that actually merits our attention.

Daniel Gardner starts his book quoting F.D.R.'s famous speech: "Let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

Look around, and you can see a lot of that in today's nuclear scare -- and investing scares, too.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own any shares mentioned in this article. eBay is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.