The Cost of a Human Life, Statistically Speaking

Is there any satisfactory method for assessing the actual cost of human life?

When legislators and regulators enact new rules, they should weigh benefits versus costs. They have to answer seemingly banal questions: Should all lighters be childproof? Should food labeling be more detailed? Should airlines carry survival equipment for inadvertent water landings? Should cars and factories reduce carbon emissions? Government officials are supposed to put numbers on the pros and cons of these questions.

Technical as it sounds, what underlies all these questions is a question is far from just technical. It is, in fact, a profoundly ethical issue. How do you assess the value of human life in financial terms?

Only then can the cost-benefit question be answered regarding how much money we should be willing to spend to save a person from dying. And only then can the ever trickier, more hair-raising question of how much it matters that life will be held be answered.

Every day, regulators answer such seemingly unanswerable philosophical questions. In the United States and an ever-larger number of other countries, they do it in ways that budget officials readily understand: They come up with a number. Today, the U.S. Office of Management and Budget puts the value of human life in the range of $7 million to $9 million.

Why these particular numbers — and not, say, 42? A crucial part of the answer is that clever economists estimate the value of human life based on our choices about risky behavior: smoking cigarettes, driving a car, eating undercooked meat, or working a dangerous job.

As Adam Smith noted centuries ago, people’s wages reflect a tradeoff regarding “the ease or hardship, the cleanliness or dirtiness, the honorableness or dishonorableness of the employment.” The forefather of modern economics aside, more than a hundred studies attempt to determine the value of human life based on the importance we place on our lives in personal decisions.

One way to calculate the value of human life is to look at how much money a worker earns for risky work. Suppose working in a coal mine pays $10,000 a year more than working a safer desk job, and that coal miners have a 1% greater chance of dying on the job.

Some economists conclude that this tradeoff suggests people value human life at $1 million. They assume the increased cost of working as a coal miner (on average, $1 million multiplied by 1%, or $10,000) is reflected in increased pay.

Another method is based on our behavior. How much will we pay for safety features such as bicycle helmets or antilock brakes? When do we choose to drive faster, even at an increased risk of death, how much faster do we go?

In 1987, when the U.S. government permitted states to raise the speed limit from 55 to 65 miles per hour, many states did so, and drivers saved time by driving about two miles per hour faster on average.

However, fatality rates rose by about one-third. Overall, people in the United States saved about 125,000 hours of driving per lost life. At average wages, the tradeoff between the time savings and the increased risk of fatalities suggested that state decision-makers put the value of human life at about $1.5 million.

Today, the United Kingdom is considering increasing the maximum speed on its motorways from 70 to 80 miles per hour. That change would lead to more deaths and, by doing so, would illuminate the question of how much regulators there think human life is now worth.

All of these studies have various problems and biases. And it is highly controversial to use them to calculate the specific value of an individual life, and they are generalizations.

Questions abound: For example, should we assume the lives of terminally ill older adults have the same value as the lives of healthy toddlers? Should we ask medical experts to adjust our assessment of a life’s value based on its quality or the probability of death?

There is no perfect methodology, but researchers have concluded that $1.5 million has been much too low over the years. Kip Viscusi, a professor at Vanderbilt University, and other prominent economists have persuaded regulators in the United States to increase their assumed values — and they have done so.

As of 2011, the Environmental Protection Agency set the value of human life at $9.1 million. Meanwhile, the Food and Drug Administration put it at $7.9 million — and the Department of Transportation’s figure was around $6 million. Are any of these the correct answer?

The question gets even more formidable. Even if we assume a human life today is worth between $7 million to $9 million, what should a future life be worth? How should we proceed if a policy choice puts future generations at risk?

If human life is worth $8 million, how much should we pay today to prevent an event that would result in the loss of ten billion human lives in 500 years? If we use a 7% discount rate, that number is shockingly tiny: $162.63. If we use a low discount rate, the number would be so significant that it would have too many zeros to fit on this page.