How to Calculate Human Life Value
Decide whose lives you want to put a value on., Decide on a methodology., In all cases, the statistical methods will need to be applied to isolate the statistical value of life, defined as the change in wealth divided by change in risk., Consider if...
Step-by-Step Guide
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Step 1: Decide whose lives you want to put a value on.
The value of life is not a constant across all individuals.
An estimate derived from Canadian labor markets should not be used to infer a value of life in Japan. -
Step 2: Decide on a methodology.
Generally this will involve finding some sort of risk that people will pay to prevent or accept money to subject themselves to.
Almost any risk can be used although the value of life may not be a constant.
That is, you might find that people are willing to pay more to protect themselves against dying from cancer than from drowning.
There are at least three general approaches here:
Individual survey:
This requires calling up random people and presenting them with a hypothetical risk-money scenario.
For example, "Suppose your doctor tells you about an early test for colon cancer.
The test is safe and painless, and detects cancers when they are 90% curable.
Other tests can't detect the cancer until it is 70% curable.
The test costs $2000 and is not covered by insurance.
Do you get the test?" Careful survey design is needed to avoid accidentally introducing biases in the sample or influencing their responses.
The main problem with this method is that it is hypothetical.Other approaches look at what people actually do in real life situations involving a risk-money trade-off.
Labor market analysis:
This involves developing a model for the wages dependent on the the risks of the job and other factors.
Other things being equal, workers will demand a higher wage in order to accept a job that involves subjecting themselves to additional health risks.
Viscusi and Aldi's 2003 meta-analysis compares many labor market studies using different data sets and models.This approach requires access to a substantial volume of detailed labor data.
Consumer preferences:
Look at what consumers are willing to spend on protecting themselves.
If possible, isolate the safety factors from other non-safety factors.
Some people choose bicycle helmets (or choose to avoid them) on the basis of fashion or comfort.
Unless the decision can be reduced to a purely cost-safety trade-off, the results can be skewed.
Choosing a different behavior, such as purchase of home carbon monoxide detectors might allow other factors to be ignored as insignificant.
Provided the retail cost of the product and its effectiveness in preventing fatal injuries are known, it can be associated with a value of life.
Those who purchase it value their lives above that threshold, while those who don't value their lives below that threshold. , Usually, this means doing a regression analysis, although its exact form will depend on the model used and the nature of the data observed. , Similar measurements, like the value of a quality-adjusted life year (QALY), may be better suited for some purposes.
The methods for measuring QALY are similar to those for measuring value of statistical life, but require also taking into account life expectancy and the probabilities of crippling, but non-fatal, injuries. -
Step 3: In all cases
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Step 4: the statistical methods will need to be applied to isolate the statistical value of life
-
Step 5: defined as the change in wealth divided by change in risk.
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Step 6: Consider if a value of life is the best thing to measure.
Detailed Guide
The value of life is not a constant across all individuals.
An estimate derived from Canadian labor markets should not be used to infer a value of life in Japan.
Generally this will involve finding some sort of risk that people will pay to prevent or accept money to subject themselves to.
Almost any risk can be used although the value of life may not be a constant.
That is, you might find that people are willing to pay more to protect themselves against dying from cancer than from drowning.
There are at least three general approaches here:
Individual survey:
This requires calling up random people and presenting them with a hypothetical risk-money scenario.
For example, "Suppose your doctor tells you about an early test for colon cancer.
The test is safe and painless, and detects cancers when they are 90% curable.
Other tests can't detect the cancer until it is 70% curable.
The test costs $2000 and is not covered by insurance.
Do you get the test?" Careful survey design is needed to avoid accidentally introducing biases in the sample or influencing their responses.
The main problem with this method is that it is hypothetical.Other approaches look at what people actually do in real life situations involving a risk-money trade-off.
Labor market analysis:
This involves developing a model for the wages dependent on the the risks of the job and other factors.
Other things being equal, workers will demand a higher wage in order to accept a job that involves subjecting themselves to additional health risks.
Viscusi and Aldi's 2003 meta-analysis compares many labor market studies using different data sets and models.This approach requires access to a substantial volume of detailed labor data.
Consumer preferences:
Look at what consumers are willing to spend on protecting themselves.
If possible, isolate the safety factors from other non-safety factors.
Some people choose bicycle helmets (or choose to avoid them) on the basis of fashion or comfort.
Unless the decision can be reduced to a purely cost-safety trade-off, the results can be skewed.
Choosing a different behavior, such as purchase of home carbon monoxide detectors might allow other factors to be ignored as insignificant.
Provided the retail cost of the product and its effectiveness in preventing fatal injuries are known, it can be associated with a value of life.
Those who purchase it value their lives above that threshold, while those who don't value their lives below that threshold. , Usually, this means doing a regression analysis, although its exact form will depend on the model used and the nature of the data observed. , Similar measurements, like the value of a quality-adjusted life year (QALY), may be better suited for some purposes.
The methods for measuring QALY are similar to those for measuring value of statistical life, but require also taking into account life expectancy and the probabilities of crippling, but non-fatal, injuries.
About the Author
Andrea Brown
Enthusiastic about teaching home improvement techniques through clear, step-by-step guides.
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