Thursday, June 2, 2011

What Things Are Worth

Quick! How would you calculate the value of:
  • A live chicken?
  • One eighth-ounce of high-grade medical cannabis?
  • Your sense of smell?
  • "Jupiter, the Bringer of Jollity"?
  • A Ph.D. in philosophy?
  • A day spent working in a coal mine?
  • A three-day migraine headache?
  • A human embryo?
  • A human heart?
  • An act of oral sex with an attractive person?
  • An act of oral sex with an unattractive person?
  • Your memories from ages 5-13?

In order to put a figure on such disparate items as these, we must have a somewhat rigorous idea of what we mean by "value."

One feature of value is audience - who values the item? What is it worth to whom? The same act of oral sex might have different values to the performer and the recipient (not to mention any bystanders). It also might have different value to different recipients. We must be clear about for whom we are calculating the value. What is an embryo worth to would-be parents? To the world? To the potential person created?

The issue of audience is pretty easy to formalize. A more difficult issue is how, exactly, we measure value.

One option: ask people. How much is your sense of smell worth to you? What is the value of not having to give Ron Paul a rim job? How much are your childhood memories worth?

The "ask people and see what they say" option we can call stated preference. The main problems with this method are that (a) people don't necessarily have introspective access to these values, and (b) even when they do, there is a great danger that they might not tell us the truth.

There is a proverb that actions speak louder than words. Economists employ this fact to get around these problems with stated preference - they try to measure how much we act like things are worth.

Where markets exist - as they do for many of the items in my list, from chickens to blow jobs - we can measure value to some degree by price. What a person is willing to pay for the item in question, and what another person is willing to accept in exchange for it, can give us a good idea of the value of an item. An offer (e.g. a statement that one "has five on it") in the context of a potential transaction is better evidence of the value of the item than a mere assertion of value - and an accepted offer is better evidence still, a principle embodied in the essentially-informational request to "put up or shut up."

What about when there's no market?

Certainly there is no market for a sense of smell. Yet we often have a need to calculate the value of such things - e.g. in tort lawsuits when one's sense of smell is lost because of the wrongdoing of another. Are we stuck with stated preference? Willingness-to-accept is often as far as it goes in the law; juries might be asked, for instance, how much they would accept to be without their sense of smell for a day, and then multiply that by the life expectancy in days of the plaintiff.

But there is another set of evidence available. We can measure how much people act like their sense of smell is worth. For example:

  • How much do people demand to be compensated for a given risk to their sense of smell? If people are observed to be willing to take a given risk of losing their sense of smell for a particular value (e.g., to get rid of a cold a few days earlier), we can arrive at a figure based on that.
  • How much do people who have lost their sense of smell pay to try to fix it? If a procedure with a given probability of success is regularly bought for a certain amount, we can calculate based on that.
  • How much does one increase one's consumption of quick-fix utility boosters when faced with a loss of one's sense of smell?

And perhaps there are other sneaky ways to indirectly measure the value of a sense of smell, childhood memories, a human heart.

The point is that when a thing's value is difficult to evaluate because it lacks a market, we can often calculate the thing's value not just based on the reports of the valuers, but based on their observable actions.

The ultimate question of value that I am concerned with is: how much is it worth to you to have been born? What is a human life worth to the individual human?

Too often, when faced with the question of the value of life, even normally rigorous economists default to what I term the "imaginary survey justification" - not even pathetic stated preference (for which the evidence is not even that great), but an extra-lame-out imaginary survey of stated preference ("Of course everybody's glad to be alive!"). It is my position that we can do better.

In the next post in this series I will outline how we might indirectly, empirically measure the value of a human life to the individual living human. This will be largely based on an unpublished paper by Richard Posner and Gary Becker, called "Suicide: An Economic Approach." If you read this in combination with "Behavioral Economics and Perverse Effects of the Welfare State" by Bryan Caplan and Scott Beaulier, you will have an idea where I'm going with this!

This also seems related: (via Rob Sica)
We introduce the concept of life salience (activation of biophilia) as a compliment to the concept of death salience (activation of a fear of death), which plays a prominent role in Terror Management Theory. Four experiments tested whether life salience decreases the need to defend one’s cultural worldview, including consumption patterns. Death salience, in contrast, should increase worldview defenses and consumption patterns. Life salience was manipulated by writing about a situation that made participants feel fully alive (Experiment 1), by watching plants grow (Experiment 2), by watching a baby movie (Experiment 3), and by subliminally priming the word ‘life’ (Experiment 4). As expected, life salience increased life-related thoughts, decreased support for consumerism, and lowered spending intentions. Death salience had the opposite effect. These findings suggest that consumerism may be rooted in the existential need to “love life.” [Emphasis mine.]

—Abstract of "Feeling Alive Without Spending a Dime: Life and Death Salience Exert Opposite Effects on Worldview Defense and Consumption Patterns."


  1. This is perhaps relevant:

  2. Yes, yes, yes it is! That article is specifically what I'm on about in my thing about social belonging.

  3. The Richard Posner and Gary Becker paper seems to substantiate the argument that potential suicides should not choose to jump to their death, lest they enjoy the experience of falling on the way down.

  4. I don't see that result - quite the opposite. If one's expected future utility is quite negative and present utility is miserably low (making the costs of waiting to hedge for uncertainty high), one might as well (under the Posner model) jump, precisely because one might enjoy it (or survive and get extra sympathy).

    It's only a bad decision if it changes future expectations of utility to the positive mid-jump - like my favorite lateral thinking puzzle, in which aan jumps out of a window, and hears a phone ring as he's falling - immediately realizing he's made a mistake.

  5. I assumed that a highly enjoyable experience on the way down might bump expectations of future utility into the positive (as in, "wow, maybe this intense satisfaction that I'm feeling while free-falling can be reproduced over and over again in my future"). Depends on the person, of course, but I'd avoid the free-fall suicide just to be safe. Then again, I've always wanted to skydive...

  6. Another astonishing example of preferences not in accordance with Maslows theory:

    "China: Teenager 'sells kidney for iPad'"

    Oh, and in other news: Dr. Kevorkian is dead.

  7. I like many of the things Bryan Caplan has written, but I don't read his posts on Econlog anymore if I see it is one of the ones where he is encouraging people to have children!


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