ECONOMISTS AND THE VALUE OF HUMAN LIFE
I read this interesting article
by Steven Landsman, an economist, who specializes in making interesting (some would say wacky) observations of human life. He starts by taking the neo-classical paradigm for a spin and applies it to some problem and offers a completely counter-intuitive suggestion that non-economists find startling (and some economists as well).
He argues that we will do well by executing hackers for the benefit to society. More hackers are deterred, less computer crashes, and when measured against this benefit, the cost to society of a few dead people (and the value of their lives) is entirely jusified. He finds the argument that human life is priceless to be a dubious one. To whit:
"The problem with that answer is that it's wrong. To understand why it's wrong, you have to understand how economists come up with these numbers in the first place. When we say that a human life is worth $10 million, we mean nothing more or less than this: A typical person, faced with a 1–in-10-million chance of death, seems to be willing to pay about a dollar to eliminate that risk. We know this not from theory but from observation—by looking, for example, at the size of the pay cuts people are willing to take to move into safer jobs. On this basis, Harvard professor Kip Viscusi estimates the value of a life at $4.5 million overall, $7 million for a blue-collar male and $8.5 million for a blue collar female. (Viscusi acknowledges that it's puzzling for a blue-collar life to be worth more than a white-collar life, but that's what the data show.)"
Out of curiosity, what would this "typical" person say if you offered them a 50-50 bet of $20,000,000 for their life. A toss of a coin? I am sure some folks would take him up on it. But I also figure that some of your "typical" agents will say: "no thanks." I think the Armchair Economist may have a fallacy in his argument. Why assume that there is a smooth (apparently linear) trade-off between a 1 in 10 million chance and a 1 in 2 chance of death? The possibility exists that human calculation may not act according to a strict expected value calculation, once the chance of an event happening reaches such high probabilities. That is, there may be a discontinuity in a person's preference function when it comes to death--itself, a rather large discontinuity...
UPDATE: To follow