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The statistical value of your life 21 April 2010

Posted by magicdufflepud in Uncategorized.
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I tend to forget that not everyone went through economics courses in college and that of those who did, a scant few came away actually liking the subject. So on Monday when I asked you whether the death and suffering in Haiti hurt the world economy more than did the enormous and widespread annoyance following the unpronounceable volcano’s eruption, I assumed an economic response. And failing that, I assumed a utilitarian response based on the total amount of good/bad brought into the world. I am bad at assumptions, evidently. Only an economist would place a value on human life, right?

Well, no.  Everyone does every day. If you’re alive, it comes with the territory, so let’s take a moment to explore the value you place on your own life. The concepts involved are relatively simple ones, and they’re more broadly applicable, too, so in addition to learning about the value of a human life, it should become clear why gambling is such a tremendously bad idea as well. Tremendously bad. Hooray for teachable moments.

The concept is expected value, an outgrowth of probability. Multiply each possible outcome for an event by its probability and sum the products. Voila: expected value. But maybe that’s too abstract. Examples typically help. Consider the outcomes from a coin flip: heads or tails. Now, say I give you $1 if when you flip the coin it lands on heads. If it lands on tails, however, I give you nothing. What’s the value of the coin toss? The probability of heads is 1/2 (or .5) so you can multiply .5 * $1.00. So, $0.50.  Now take the other outcome, tails. This time you’ll get nothing, so the equation (the probability’s the same of course) is .5 * $0.00. So, $0.00. Add $0.00 to $0.50, and the expected value of the coin toss is $0.50.

Admittedly, it grows more difficult when the the number of outcomes grows. You’ll find it harder to, say, judge the expected value of a dating situation when the possibilities include 1)Acceptance, 2)Rejection or 3)Rejection and gossip to all her friends that you’re sketchy. Or you can pick a happier example. Regardless, that’s about it for the textbook talk. Let’s get on with life.

Consider a crazy world in which your commute to work is an expected value scenario consisting of two possible outcomes (like a coin toss). Outcome one: you drive to work on the highway, arrive safely, make $600 for the day, and drive home to your wife/concubine/television and cats. Outcome two: you die in a fiery wreck on the interstate. Boom goes the dynamite. On any given day, the probability breaks down to a .99991 chance of outcome one and a .00009 chance of option two.

You can see where this is going: if you believe life cannot be valued or has infinite value you will not go to work. If you believe the former, then you’ll flop to the garage floor in a paroxysm of indecision, and if you believe the latter, you’ll stay at home because the result of your calculations will be infinitely negative. In fact, unless you consider your life worth less than about $6.7 million, you’ll ask for a raise or become a perpetual shut-in. Best to stay with the mistress.

Now, granted, most folks aren’t the rational calculators that my example assumes, but plenty of careers in the real world test the same idea. Why else would the show Deadliest Catch exist? Commercial fishing is the most dangerous industry in the US. It involves a very real risk of dying. And because of that, it necessarily commands higher wages. Is the work that much more difficult than that of any other physically strenuous position? Probably not. But you aren’t likely to die while splitting rocks or digging a ditch.

Interestingly enough, it’s that kind of trade-off the government uses to determine the statistical value of a life. Its auditors look at the premiums workers in dangerous industries request to compensate for higher risks of death or injury. And then policymakers (not politicians) use that information to determine whether the number of lives saved by a new measure or construction project will make up for the costs. It’s cold, but then again, Americans like to drive 70mph even if it costs scads of lives.

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1. The statistical value of your life « Summit County, CO: Skied, Lived « Rubber Tyres –> Smooth Rides - 21 April 2010

[…] PDRTJS_settings_76622_post_1839 = { "id" : "76622", "unique_id" : "wp-post-1839", "title" : "The+statistical+value+of+your+life+%C2%AB+Summit+County%2C+CO%3A+Skied%2C+Lived", "item_id" : "_post_1839", "permalink" : "http%3A%2F%2Flinusfernandes.com%2F2010%2F04%2F22%2Fthe-statistical-value-of-your-life-%25c2%25ab-summit-county-co-skied-lived%2F" } The statistical value of your life « Summit County, CO: Skied, Lived […]


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