Sunday, June 8, 2008

How much do you value your life?

Let's say you're asked how much a human life is worth. To avoid weird looks in most circles you would answer that it's invaluable, we can't quantify something like that. Of course, I don't hang out with what could be considered normal people so my follow up question would probably be "which life?" ;)

Let's use our own life as an example, as it's the one we're all most familiar with. We put a price on our life with our every day actions without realizing it. When you decide to drive instead of taking the bus, you gamble your life away. It's much more likely you'll die while driving than while taking the bus. But you think that the time and comfort savings are worth the chances of you dying in a car crash, and so you take the car. How about when you decide to buy more expensive fruits and vegetables. The taste might be similar to cheaper ones but the more expensive organic fruits are generally better for your health, and thus more likely to increase your life span.

Stanford professor Ronald Howard invented a concept called the micromort. A micromort is a one in a million chance of death. In other words, it's the amount of money you would have to give to someone for them to risk a one in a million chance of death. If someone's willing to receive (or, more likely, save) 20$ for a one in a million chance of death, then we can infer they value their life at 20 million dollars.

There's this book I like called Making Great Decions in Business and Life where the authors use this concept to analyze a car purchasing decision. They, previously in the book, penned the human life at an average of 10 millions, so 10$ for a micromort. I'll quote from the book:

Consider buying a car. For each million lighter cars--those weighing less than 2,500 pounds--that are on the roads, 109 people die each year. For each million heavier cars--those weighing 3,500 pounds--that are on the road, only 53 people die each year. If we use an average of 10,000 miles per year per vehicle, then each mile driven in a smaller car costs the driver 0.0109 micromorts while each mile in a larger car costs 0.0053 micromorts. If you keep this car for 100,000 miles, then the smaller car has a safety cost of $10,900 (1,090 micromorts times $10 per micromorts) while the larger car has a safety cost of only $5,300 (530 micromorts times $10 per micromort). The larger car undoubtedly costs more to purchase and operate, but given everything else equal--don't consider the smoother ride, the bigger trunk, or the worse mileage--it is worth $5,600 more purely on safety.

Think about this concept as you make trivial decisions in your daily life and you'll be amazed at the amount of risks you take.


Chris Roat said...

If a plane goes off a runway, the airports have to decide whether to lengthen the runway. The balance they have to strike is between the cost of lengthening the runway (including logistical costs, like re-routing planes during construction) and the insurance and litigation costs of dealing with a disaster.

Last time I heard, the air industry values life around $3 million.

Jen(n) said...

The problem I find with this, is that if I take $20 for a micromort, then yes, my life would be worth $20 million. However I would not take $20 million to end my life. Why? Because I get to enjoy the $20, but would not get to enjoy the $20 million. A more interesting question would be, how much money would I take to end my life in say 10 years, 20 years? And so on...

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