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Valuing Life

New reports on Richard Thaler, who received the “Nobel Memorial Prize in Economic Sciences” this year usually mentioned, albeit in passing, Thaler’s doctoral dissertation on the topic of estimating the value of a human life. This topic is often taken to represent economics at its worst: economists trying to place a monetary value on something that is of infinite value.

Yet the centerpiece of the estimation approach is not about what value other people might impose on another person’s life, but on backing out what value people place on their own lives. Indeed, our own actions reflect that we do not place an infinite value on our own lives. We make tradeoffs between risk to our own lives and reward numerous times every day.

The nub of the estimation approach is easy to understand. (Actual estimations are more difficult.) It goes something like this: Say there’s a sale on an item you want to purchase, but the store with the sale is 20 miles further away than the store closest to you with the same item, but not on sale. If you purchase the item on sale you’d save $30 net of the added cost of getting to the more-distant store. (The gas, marginal wear on your car, your time, etc.). Driving the extra 20 miles, however, also entails additional risk: Traveling the additional 20 miles creates an additional one chance in 100,000 that you will be involved in a fatal auto accident. From your decision whether to make the trip for the sale, and the tradeoff you make between the risk and the reward, we can start to determine the value you place on your own life. If you make the trip, the implicit monetary value that you place on your life must be less than $3,000,000 (the marginal economic gain to you of $30 divided by the marginal increase in risk to your life of one over 100,000).

There are a host of complicating factors when attempting to calculate the implicit values we place on our own lives. But whatever those complicating factors, the underlying fact is that we all make those sorts of implicit tradeoffs all the time. The upshot is this: whatever the value we in fact place on our own lives, that value is not infinitely great. We don’t treat our own lives as though they are of infinite value.

This recognition is not a cold-hearted recognition of the tradeoff. Its recognition can sometimes help us to cut through nonsense to get to a real consideration of the risk to which others subject us.

One of my pet peeves is the common institutional platitude, “Safety First.” Well, in fact, if safety were truly an institution’s first concern, then the institution (the firm, the lab, the event) almost certainly wouldn’t exist in the first place. If we first make sure everything is safe as possible, then we would not engage in many of the most important things we do every day.

Companies are no different. What the “Safety First!” platitude sidesteps is recognition that firms are engaged, necessarily so, in tradeoffs between safety and other goals, including production and profit.

The fact of a tradeoff is not cold or calculating, or problematic. We all necessarily engage in tradeoffs in our private laws all the time in matters economic and non-economic. The question, though, is the actual terms of the tradeoff a particular firm or institution is making.

The problem with the “Safety First” platitude is the pretense that the firm in fact is not trading off risk and reward. It avoids raising the issue of the actual terms of that tradeoff between risk and reward to which a firm subjects its employees.

After all, it is possible that we value our lives more dearly than is implicit in the company’s tradeoff between safety and profit. Frank recognition of the tradeoff better opens the door, as Thaler and his co-author mentioned in a 1976 NBER paper, to “Adam Smith’s ancient suggestion that individuals must be induced to take risky jobs through a set of compensating differences in wage rates.” Recognizing the fact that tradeoffs are made of necessity is not cold or calculating. It is a first step to facing whether we consider those tradeoffs to be reasonable or unreasonable for ourselves, and insisting that our reward be commensurate to the risks that we face.

Reader Discussion

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on October 27, 2017 at 09:53:43 am

A fine point on the merits of acknowledging trade-offs to avoid simplistic sentimentality.

Of course, “Safety First” doesn’t really mean safety first; it just means that a firm places a priority on safety, right? Yet the very concept of “priority” reflects an intellectual model suggesting that people have but one objective at a time and, when they achieve that objective, are then freed to pursue the next objective. (See, for example, Maslow’s hierarchy of need.) In contrast, utility models suggest that people have multiple objectives and pursue them all simultaneously, making moment-to-moment trade-offs as the relative prices of the objectives, and as the individual’s resources, change. In short, I’m skeptical that people really have “priorities.”

That said, a computational quibble:

Say there’s a sale on an item you want to purchase, but the store with the sale is 20 miles further away than the store closest to you with the same item, but not on sale. If you purchase the item on sale you’d save $30 net of the added cost of getting to the more-distant store. (The gas, marginal wear on your car, your time, etc.). Driving the extra 20 miles, however, also entails additional risk: Traveling the additional 20 miles creates an additional one chance in 100,000 that you will be involved in a fatal auto accident. From your decision whether to make the trip for the sale, and the tradeoff you make between the risk and the reward, we can start to determine the value you place on your own life. If you make the trip, the implicit monetary value that you place on your life must be less than $3,000,000 (the marginal economic gain to you of $30 divided by the marginal increase in risk to your life of one over 100,000).

I think that’s less than $1,500,000. If the sale is an additional 20 miles away, and if I’m going to drive to the sale and back, then I’d be traveling an additional 40 miles—thus incurring a risk of two chances in 100,000—to save $30. So $30/(2/100,000) = $1.5 million.

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nobody.really
on October 27, 2017 at 11:47:18 am

Then again, the drive could be mesmerizing and induce a "Maslow-ian" *Peak Experience* - now what is THAT worth. (I assume you are familiar with this aspect of Maslow's thought.) Ha!

As to the whole calculation of "self-worth" (dollar-wise) it seems both beside the point and completely useless. Unlike you, I do believe that people have priorities, many different and differing ones, but it is doubtful that during the course of a typical day, that the individual is at all cognizant of those priorities (unless of course you are a warfighter).

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gabe
on October 28, 2017 at 10:04:44 am

As a Co-operative Engineering Scholarship student, I had the privilege of working for DuPont Nylon Research in Chattanooga, Tennessee. Employees carried USPUSC cards and were reminded to not unsafe practices and unsafe conditions. The policy instilled a culture of safety.

When I applied for permanent employment, my job-placement expedience yield job offers. I chose Ethyl Corporation, Baton Rouge, LA, because the management was spawned from DuPont and Standard Oil and had the safety and other employee attitudes, and I would be among 600 engineers instead of tens of thousands.

In my 35 year career there, safety first was a guiding principle that determined not whether or not a task would be done or a product would be made, but how events would unfold.

As an example, we discovered that a 3 decades-old operation acquired through acquisition could literally blow up. We did the research to prove the potential for disaster, designed a new reactor system that could not blow up, and installed it. Supply of an important product continued without safety threat.

In another case, an entire production line was shut down by an event. Production was curtailed for the months required to change the chemical route to the product. The market---humankind---needs that product for practical reasons.

In another case, our company declined to research a precursor to a binary war compound. Perhaps that case illustrates morality first derived from safety first.

This is just one of many stories that led to an essay, "Integrity, Not Just Honesty, Is What Teams Need," The Albemarle Globe, June 1998, published by the Albemarle Corporation.

Safety First represents a guiding principle for process more than product. Safety First may keep economic expediency from inviting woe. The principle seem applicable to human life as well as to corporations: Maintain life using a safe process.

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Phil Beaver
on October 28, 2017 at 10:06:05 am

Sorry. it should be "not tolearate unsafe . . ."

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Phil Beaver
on October 31, 2017 at 14:37:01 pm

"We don’t treat our own lives as though they are of infinite value."

Just because we put ourselves at risk doesn't mean we don't value our lives. I value my child's life so much that I would die to protect her life, but that doesn't mean I refuse to drive her to her little league game because we might get in a car accident.
On the contrary, it's because I value her life so much that i want her life to be full of pleasurable and rewarding experiences that I put the tiny possibility of a car crash out of my mind and drive her to her game anyway.

It is precisely because we believe life can be valuable (rewarding) that we risk pain to experience rewarding experiences.

It's not "safety above all else", it's "pursue pleasure in the safest way possible without forfeiting the pursuit of the pleasure". If it were "safety first" we would be virgins to avoid STDs and we'd die out after one generation. No, it's "pursue pleasure safely", for instance, wear a condom.

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Infinitudes
on October 31, 2017 at 15:25:00 pm

To say that Martin Luther King Jr. didn't place an infinite value on life because he went outside and risked getting shot, rather than stay at his safe home, is to completely misunderstand MLK's message.

It was precisely because he thought life had infinite value (infinite possibility?) that he strove above all else--even his own safety--to preach the message of a just and fair society for all, so as many people as possible could experience the infinite value that life can have.

It is precisely because we believe life has value (rewarding pleasures) and not just duration, that we are willing to pursue that value (those pleasures) at the cost of possibly shortening the duration of that life. An infinitely long life completely devoid of all pleasures and happiness (rewards) has no value of any kind. Life is valuable only insofar that it is capable of experiencing pleasure and happiness now or in the foreseeable future. (And we should try to take care of people in persistent vegetative states.)

Pleasure and happiness is what gives life its value, just as the bill of rights is what gives law its value. The law must deal out justice--just as life will occasionally be miserable, like when someone dies--but we value the law insofar as it allows us to pursue the rewards of existence that give life its value. We may need the punishment part of the law, just as we need to be able to feel pain to avoid it, but it is not what gives it its value. We need to exist to experience the pleasures of life, but merely existing without being able to pursue happiness is not a pleasure in itself--if it were we would not need pleasures on top of the pleasure of merely existing (for its own sake).

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A lifetime of our lives
on October 31, 2017 at 17:52:25 pm

Economists seem to think that if we are willing to take risks that we place a finite value on life. For instance, sex could lead to AIDS, so anyone who has sex places only a finite value on life, whereas virgins place an infinite value on life. Or, because 1 in 100,000 refugees will be terrorists, only people who don't want to take in refugees place an infinite value on life, even though one of the refugees you let in may end up being the doctor who performs life-saving surgery on you decades from now.

Choosing to take risks does not mean that we don't place an infinite value on life; those who gave their lives on the shores of Normandy did not place a finite value on life whereas the Germans who huddled in their homes and didn't resist the Nazis somehow placed an infinite value on their lives.

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Double-Dee Day
on October 31, 2017 at 18:14:39 pm

Economists think that when we get in the car we ask ourselves, is what i'm doing worth risking my life over?

But just as a psychologist and they will tell you that we don't think of driving a car as a life-threatening experience or we wouldn't do it. Sure, we know there's a remote possibility we'll be in a car crash, so we wear a safety belt, but we don't think that where we're driving to is more important than our life.

Like with sex. When we decide to have sex for the first time we don't ask ourselves--is it better to stay a virgin our whole lives rather than risk getting AIDS? We simply put on a condom and have sex. And we know this because 99% of people have sexual lives rather than remain virgins--to avoid dying prematurely of AIDS. If people really thought that having sex and risking contracting AIDS meant that we didn't value our lives, many fewer people would have sex.

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Screwing for peace
on October 31, 2017 at 18:26:28 pm

Ask your 15-year-old son before he drives over to his girlfriend's house to have sex if it's worth it when there's a chance he could die in a car crash on the way there, and there's a chance he could contract AIDS from his girlfriend and die? Then tell him that if he's willing to take a chance on his life just to have sex, that means he doesn't place an infinite value on his life.

He will tell you that it's quite the opposite, it's because he values living above merely existing that he's willing to risk his life in a car crash to have sex with his girlfriend who might be hiding her AIDS diagnosis from him. He'll also call you a hypocrite because you obviously had sex to create him, and yet you think you place an infinite value on life.

Taking risks very small risks is not proof that was does not value life infinitely. Most people don't even think about the possibility of dying in a car crash every time they get in the car. If they did they'd probably suffer from an anxiety disorder in no time. The reason we can remain calm is because we don't think about death every time we get in the car or have sex, even though there's that 1 in 100,000 chance of utter destruction from crashes or AIDS.

Next time your wife talks about going to Paris to see the Eiffel Tower, tell her that if she really valued life she wouldn't get on a plane because sometimes they crash. You'll be sleeping on the sofa in no time.

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Dhali Lambda
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on April 15, 2020 at 08:58:04 am

[…] to elicit from our own behavior the economic value we place on our own lives. As I explained in an L&L post discussing Nobel Prize winning economist Richard Thaler’s doctoral work on estimating the […]

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