Jan
3
How Much Is Your Life Worth?
Filed Under Money, The Bigger Perspective | 1 Comment
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Recently, in my Stanford decision analysis class, I figured out how much part of my life is worth – about $500 million! Follow these steps and figure out how much you think your life is worth!
1) We’ll start by assuming that you are diagnosed with some disease. So umm… you’re dying! Good news though! There’s a cure! Bad news is – it’s an operation that requires a week of horrible pain. Ouch!
2) There’s more good news! Some guy who has undergone this horribly painful operation has made a painless cure. Yay! Unfortunately, he wants money for all his efforts in making it. Boo! Sooo, how much would you pay to avoid the week of intense pain?
3) Luckily, the government has taken pity on all the poor people. They made their own painless cure and are distributing it for free! It doesn’t work as well as the other one though… There’s um… a chance that you might accidentally die with this option! What chance of dying would you take to avoid that week of pain?
That’s all there is to it! Since you are indifferent between options 1 and 2, as well as options 1 and 3, you are indifferent between options 2 and 3. Therefore, the amount of money you paid in option 2 is how much you value the chance of dying that you specified in option 3!
If you divide the amount in option 2 by your chance of dying in option 3, then you get the $$/death (dollar amount that you would pay to avoid 100% chance of dying) – that is, the value of your life! This # came out to $500 million for me because I’d picked $500 for option 2 and 1 in a million for option 3.
Now, you probably have some objections! “Hey, I’m not willing to take any amount of money to die”, you’re probably saying. Yes, of course, I wouldn’t either 
This is because while I would take $500 for a 1 in a million chance of dying, I wouldn’t take $50 million for a 1 in 10 chance of dying. It doesn’t quite scale that way!
Here’s a typical chart:
For most people, the scale is quite linear until you get to about a 10% chance of dying. At that point, the marginal utility of your money (the amount you gain by trading parts of your life away) starts decreasing dramatically since money is pretty useless when you’re not alive to use it! The cost of trading away each additional % of your life increases exponentially.
However, because the scale is linear for a long part, it is still a quite useful measure. If you divide your total life amount by a million, then you get the amount that you would pay to avoid a 1 in a million chance of dying.
This becomes very interesting if you try to factor it into your every day activities. For example, a plane ride incurs approximately a 7 in a million chance of dying. So, technically, since I am willing to pay $500 to avoid a 1 in a million chance of dying, a plane ride actually costs me $3500 + the plane ticket price. Of course, this assumes that I have no chance of dying doing the alternate activity (such as sitting around on a computer typing this article).
This amount seems quite large to me though. If the plane ticket is $300, I don’t think I’m really willing to pay $3800 to take that same flight with no risk of death. It would appear that I have a very poor perception of the riskiness of certain activities and how much that risk is worth to me. Perhaps, in the example above, I really am willing to take more of a 1 in 100,000 chance of dying or 1 in 10,000 chance of dying. In that case, I’d pay $35-$350 for extra safety, which would be well worth it.
How much is each portion of your life worth? Are you sure?
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not a thing
my life is not worth a thing
people dont care its a world
where Millions in north america
are going to be HOMELESS
and they are to stupid to see whats happening