10/20/2007

If God Were an Accountant…Whose Life is Worth more, a Drug Dealer of a Prostitute?

What is the value of a human life? Many economists in the past have put a dollar value on a human life based on the amount of lost wages that would arise if one died earlier than expected, but this article disagrees with this type of measurement. Lost wages only shows the value that an employer places upon the life of an individual, but it does not show what the individual personally values his/her life at. Therefore, this article states that the true value of a human life should be measured based upon the amount of risk a person is willing to accept in exchange for a certain amount of money. I think this is a great way to determine the amount of money that an individual life is worth, because it is the best way to measure the exact amount that the person valued his/her life at. Risk versus return, it makes sense to me.

7 comments:

Logan said...

Economists are interesting beings because we like to put a dollar figure on everything. It is the great delineating factor between rational choice and emotionally driven actions. Emotions and traditions (which have strong emotions attached to them) cause us to behave in ways that we would not otherwise. Thus economists relish the moments where we can take emotionally charged traditionalists and guide them to rational thought. All it takes is a dollar figure.

To say that a prostitute is worth more than a drug dealer (or vice versa) just puts funny prickly sensations in the back of your throat because emotionally driven tradition would say something like, 'neither of them are worth anything, so why are we even discussing this?'

And that is the beauty of economics. If neither truly had any value, they would never be paid...and yet they are. Hence society has decided that they are valuable as demonstrated with their pocketbooks. Sadly enough, apparently both of them are worth more than me to society since I currently make less than $50,000/year, and I definitely don't take any risks at my job (unless you count carpal tunnel syndrome as a society enhancing risk).

peyton said...

I think this is an interesting way of valuing ones life. Is it better I don't know, but it would make more sense to base it on the risks we take compared to what a 3rd party thinks we are worth.

Dr. Tufte said...

This is another juicy one.

What's interesting (and frightening) about this research is that many people's choices suggest valuations on their own lives that are much lower than what their employers will pay them over their lifetime.

Don't believe me? What about wearing helmets? What about driving more generally? What about avoiding the doctor (or the dentist)?

Logan: in order to make your comparison, you need to discount your expected lifetime earnings. So, figure something like 7% nominal raises every year, end then discount at a something like 3%. You'll easily get a figure in the millions.

Across the post and comments, what you are seeing here is the judicial system trying to make what are essentially economic decisions without asking economists as much as they should. The economics profession has been actively working on educating judges for about a generation now.

Gavin said...

Extra Credit - Dr. Tufte
It is frightening that individuals place more value on being "cool" than safe. The court should not be able to award excessive values for individuals who do not have a proven track record of wearing a helmet, visiting the dentist, and carrying a life insurance plan.

William said...

Dr. Tufte,
It seems to me that you can never put a dollar amount on a person’s life. It is ridiculous to do this. The best student that is a goodie two shoes could not believe there life is worth anything. Does this in effect mean that his/her life is worthless? Nonsense! And vice versa there could be a person that is a reckless adventurer that believes his life is worth much. Does it therefore mean he gets more precedent then the student? I think it is a scary thing when we try to put a value on a human life. I don't think any person should be able to determine this.

Dr. Tufte said...

Hmmm William.

If we don't put a value on human life, does this mean that we should do away with cash awards as liability for accidental deaths? Would people go for that?

I would say that the legal system started this, and economists are just the hired help that provide a dollar value.

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