Microkhan by Brendan I. Koerner

Everything Counts in Large Amounts

October 14th, 2011 · 2 Comments

Buried in this alarming account of crooked Brooklyn cops is a brief aside about how New York City is settling up with the scandal’s victims. Dozens, if not hundreds of men were falsely imprisoned after having drugs planted on them by police striving to hit their monthly arrest quotas. How much money do those men deserve? The city has a fairly specific dollar amount in mind:

To settle civil actions, the city is paying about $1,000 per hour of wrongful incarceration, said Richard Cardinale, a lawyer in Brooklyn who said he had filed claims for 25 people and received settlements for all of them.

The story offers no explanation as to how that thousand-dollar-an-hour figure was arrived at, which is a shame—the actuarial wizardry that goes into ascribing monetary value to intangible concepts like freedom is truly fascinating. As much as we like to spout platitudes about how life is priceless, the fact of the matter is that when push comes to shove, we’re often forced to put price tags on the most precious gifts of all. And given that our species is pretty adamant in the belief that mathematical formulas can accomplish anything, we’ve actually put a great deal of thought into figuring out the “right” sum to award those who’ve lost an incalculable amount.

I covered this terrain several years back for Legal Affairs, in a piece looking at the formulas that courts use to calculate “hedonic damages”—that is, money to compensate for the loss of happiness. Economists have concocted some pretty ingenious ways to price out such an abstract concept:

AT THE HEART OF SMITH’S FORMULA is a concept called “willingness to pay,” or WTP. This can be broken down into two subsets, the “wage-risk model” and the “consumer expenditure approach.” The former analyzes how much additional salary people demand to assume additional risk. Suppose you’re a security guard and your boss wants to transfer you to a downtown warehouse where the crime rates are higher. In the new neighborhood, your odds of being killed in the line of duty will double from 1 per 2,000 to 1 per 1,000. Aware of this danger, you ask for a pay raise of $3,000 a year. So, according to Smith’s calculations, you’ve just valued your life at $3,000,000—$3,000 multiplied by 1,000. Not that Smith tailors his formula to the particulars of an individual’s life; rather, he examines decisions in numerous professions and comes up with a range of averages.

The consumer expenditure approach looks at how much people are willing to spend on safety products to reduce their risk of death. Let’s say you’ve splashed out $1,000 for a snazzy burglar alarm, which has lessened your risk of being shot by a robber by 0.02 percent; then, you’ve valued your life at $5,000,000.

For some reason, this whole line of inquiry always makes me think of a classic The Simpsons quote, uttered by Bart upon being told that he has found an artifact (an alternate ending to Casablanca) that could be “priceless.” “Priceless like a mother’s love?” he asks. “Or the good kind of priceless?”

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2 Comments so far ↓

  • Captured Shadow

    Great Topic!
    I read a report of one survey that asked how much white people would want if they had to live the rest of their life as a black person and the most common answer was $1million per year if I recall correctly.

    I often use that reasoning when I am arguing against tort reform. “A one million dollar damage cap for pain and suffering seems ok, but say if a doctor screwed up and you ended up blind? How much would you want? How about blind and deaf?…..”

  • eraserhead

    @Captured Shadow:
    There are great Chris Rock and Louis CK riffs on the white/black thing. Louis CK: “Black people are scared of time machines; as a white person, I know that whatever time I set the machine to (in the past), there will be a table waiting for me.”

    Microkhan, the whole idea of placing value on intangibles always *almost* made me want to be a lawyer.

    And Bart’s savage quote always makes me sad, I dunno why. Probably because I feel the world works Bart’s way.

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