Cameron Value of Life - Value of Life Figures Help...

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‘Value of Life’ Figures Help Government Measure Risk, by Trudy Anne Cameron, Commentary, The Register-Guard. On July 11, on the front page, the Register-Guard ran an AP article by Seth Borenstein entitled “In the numbers game of life, we’re cheaper than we used to be.” The reporting on this issue was better than the misleading title, but there are a few points which should be clarified. The “value of a ‘statistical’ life” is not the same thing as the “worth of a life.” The article’s opening paragraph trumpets that “A government agency has decided that an American life isn’t worth what it used to be.” Fortunately, these agencies do not merely pick their favorite number out of the air. Instead, the numbers are based on a wide variety of large-sample peer-reviewed statistical studies. These studies measure the tradeoffs that real people actually make, or claim that they would make, when they must decide whether to give up some money for an increased margin of safety. Each study produces a different estimate of people’s willingness to pay to reduce some specific mortality (death) risk. An average willingness to pay is desired, but each study has considered a different- sized risk reduction. It is not correct to average across “apples and oranges.” Thus it is typically assumed that willingness to pay is roughly proportional to the size of the risk reduction, at least over the policy-relevant range of small risk reductions. Example: Study A might have considered a one-in-a-million reduction in the risk of death (sometimes called a “micromort”) and come up with an average willingness to pay of $5. Study B might have looked at a three-in-a-million risk reduction (i.e. three micromorts) and found an average willingness to pay of $21. If we convert Study B's result to the corresponding value for just one micromort, it works out to a willingness to pay of $7 per micromort. We could then say that the average across the two studies - of willingness to pay $5 in one study and $7 in the other, for the same single micromort - would be $6. If we then wanted to use this set of studies to produce a best guess about what people might be willing to pay for a two-micromort risk reduction, which wasn’t specifically covered by either study, we should use twice this value, or $12. Unfortunately, instead of scaling all estimates of willingness to pay for risk reductions to the corresponding willingness to pay for a single micromort (that is, a risk change of 0.000001), as was done in the example, somebody decided to use an equally arbitrary benchmark risk change of 1.00 (which means going from a death probability of one to a death probability of zero). The average willingness to pay, scaled up to this huge risk reduction, is called “the value of a statistical life.” This is the number which the U.S.
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This note was uploaded on 12/20/2010 for the course AEM 25 at Cornell University (Engineering School).

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Cameron Value of Life - Value of Life Figures Help...

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