Purple Balls of Death

Tag: Purple Balls of Death

“Pencil-necked academics” and the VSL

H. Spencer Banzhaf has a very cool piece in the new Journal of Economic Perspectives on the intellectual history of the concept of the value of a statistical life (VSL).  This evidently owes some debt to work at the RAND Corporation, where analysts were addressing the “classic problem” of maximizing damages to the enemy subject to a budget constraint.  The proposed solution of sending up lots of vulnerable decoy planes to distract the Soviets, however, hit a snag with the Air Force:

While RAND was initially proud of this work, pride and a haughty spirit often go before a fall. RAND’s patrons in the US Air Force, some of whom were always skeptical of the idea that pencil-necked academics could contribute to military strategy, were apoplectic. RAND had chosen a strategy that would result in high casualties, in part because the objective function had given zero weight to the lives of airplane crews. In itself, this failure to weigh the lives of crews offended the US Air Force brass, many of whom were former pilots.* (Banzhaf 215).

In response, some of the big thinkers at RAND, including legendary UCLA economists Jack Hirshleifer and Armen Alchian, went to work framing the problem.

In our society, personnel lives do have intrinsic value over and above the investment they represent. This value is not directly represented by any dollar figure because, while labor services are bought and sold in our society,human beings are not. Even so, there will be some price range beyond which society will not go to save military lives. In principle, therefore, there is some exchange ratio between human lives and dollars appropriate for the historical context envisioned to any particular systems analysis. Needless to say, we would be on very uncertain ground if we attempted to predict what this exchange ratio should be.

But picking out what the exchange ratio should be is exactly what the Value of Statistical Life is all about.  So, eventually, Thomas Schelling picked up on the problem with Ph.D. student Jack Carlson, culminating in Schelling’s 1968 piece, “The Life You Save May Be Your Own” exploring tradeoffs in willingness to pay for reductions in microrisks.  According to Banzhaf, Schelling’s contribution was to make the connection between public policy tradeoffs between lives and equipment and individual decisions involving risk (e.g., taking “hazard pay” that provides a premium for taking more dangerous assignments) (Banzhaf 222).

Earlier this term I gave the Freshman Studies lecture on Schelling’s Micromotives and Macrobehavior and spoke extensively about microrisks, though I was not aware of this particular contribution.  I guess I will put that incorporate that if I give another talk next year.

References after the break.

* Banzhaf also gives us a taste of public choice to go along with that:  “But moreover, that failure led RAND’s program to select cheap propeller bombers rather than the newer turbojets the US Air Force preferred” (215).

Continue reading “Pencil-necked academics” and the VSL

Fall Festival, October 5

The purple balls make their first appearance at Fall Fest this Saturday morning:

“I Like Your Chances: Quantifying Mortality Risks”

David Gerard, Associate Professor of Economics
Briggs Hall 119

Two things are certain in life – death and taxes. As Professor Gerard is a bit tired of talking about taxes, he will discuss work on quantifying mortality risks for use in regulatory policies. He describes these risks in terms of ‘micromorts’ (a one-in-a-million chance of dying) and characterizes mortality risks for demographic groups across the U.S. and Europe.

Given the subject matter, we might change that to Careful so that you don’t Fall Fest.

The Price of Life

In this, the 500th post on the Lawrence Economics Blog, we bring you a story from the NYT on the statistical value of life.  Indeed, as anyone in an environmental economics or policy course knows, the “value” placed on saving a statistical life (VSL) is associated with reductions in risk levels that decrease the probability of being killed (i.e., from reducing the number of purple balls in your urn).

This VSL is pivotal in determining the benefits of many non-economic regulations, and many federal agencies have increased the value used in benefit assessment in the past few years.

The Environmental Protection Agency set the value of a life at $9.1 million last year in proposing tighter restrictions on air pollution. The agency used numbers as low as $6.8 million during the George W. Bush administration.

The Food and Drug Administration declared that life was worth $7.9 million last year, up from $5 million in 2008, in proposing warning labels on cigarette packages featuring images of cancer victims.

The Transportation Department has used values of around $6 million to justify recent decisions to impose regulations that the Bush administration had rejected as too expensive, like requiring stronger roofs on cars.

That is the salient point of the article; the rest mostly gets down to talking about the prospects and problems of using VSLs in the first place.  If you are reading this, you probably know already.

Are you feeling lucky, Prius?

My colleague Paul Fischbeck is in the news for calculating the incremental risks from driving a Toyota with an accelerator problem.  According to his press release:

In the U.S., there is a little more than one fatality for every 100 million miles driven. The average U.S. vehicle logs about 13,000 miles each year. Based on these averages, for the 2.3 million Toyotas being recalled, there are about 340 fatalities every year for causes unrelated to the accelerator. The accelerator problem is adding about six deaths every year to this total — meaning that the accelerator problem is increasing the driving risk by about 2 percent.

So there’s a meat-and-taters public policy question for you — do the benefits of fixing the problem justify the costs of a massive recall?   To put this in context, a 2 in a million chance is about the same as flipping a coin 19 times and getting heads every time.

See you in 240.