When I wrote a while back about implied value, I was thinking about this story I saw a while back in the New York Times. In it, economist Stan Smith used an implied value calculation to estimate the value of life experience which he calls "hedonic damages":
THERE is economic damage from a wrongful death: the value of a person's lost work life.
Then there is the loss of life's experience - the daily satisfaction of living. Presumably, says the Chicago economist Stan V. Smith, people cherish life itself much more than their work.
"We value our being far more than we value our doing," he said. So why give the loss of work a dollar value but not the loss of daily experience?
Mr. Smith has tried. He coined the term "hedonic damages" for lives and experiences lost.
"As economists, we can't say there's a limit to the value of life," he said. "But there may be an average value that juries can consider."
That average, Mr. Smith figures, is around $4 million.
Mr. Smith says that people unknowingly set a value on their own lives by what they are willing to pay to reduce their everyday risk of death.
Say a certain home safety feature costs $50. If research shows that for every 100,000 of those devices in use, one life is saved, then the implied value of that life is $5 million:
100,000 devices x $50 = $5,000,000 to save 1 life
The more people are willing to pay for safety features, the more they are implicitly valuing their lives. Mr. Smith has calculated value-of-life figures for numerous purchases, based on their costs and how much they reduce the risk of death.
PURCHASED ITEMS AND IMPLIED VALUE OF ONE LIFE:
Smoke detectors: $628,618
Auto safety features: $4,198,517
Top-grade tires: $6,031,019
The examples above show a large variance in how people implicitly value their life. It can only make sense if the value of life is higher than every one of the implied values. If the value is lower in some cases, then people may be making poor decisions.