John Ioannidis, destroyer-of-worlds, has come for economics. It turns out we’ve scienced badly. So badly, life isn’t worth as much as we used to think. The standard empirical estimate of the value of statistical life (VSL), is in Ioannidian terms, woefully underpowered and dramatically inflated. Economists and policymakers typically use a figure of around $9.4 million for VSL. Ioannidis suggests that the true figure might be closer to $1.5 million.
What does that mean?
While we all believe in our hearts that life is immeasurably precious, we don’t act that way. We take risks all the time and often just to save a buck. For example, speeding kills. This, however, deters very few people from doing it. The threat of a traffic tickets does get us to slow down. We won’t drive safely to protect our lives, but we will to protect our wallets.
These types of decisions occur every day throughout our lives. By looking at how we respond to safety versus savings, economists can get a sense of how much value we place on our own lives. Of course, few people would except anything other than a truly exorbitant sum in exchange for immediate death. That, however, isn’t the tradeoff that policymakers usually face. They have to consider how much they’re willing to expend to increase safety. That’s a calculation very much akin to the one about speeding.
Indeed, the DOT has to consider how much it will spend to avoid putting a sharp bend in the road knowing that it puts drivers, many of whom won’t slow down, at increased risk. The answer according to DOT guidance was $9.4 million. Ioannidis says that’s far too steep and based on sloppy statistics.
This has repercussions for all sorts of cost-benefit analysis and suggests that safety regulations, in general, are too onerous. Perhaps our forebearers had the right idea.
H/T David Henderson