How Does One Evaluate the Value of Human Life?

Opportunity cost is the benefit of the next best alternative that is lost because of the chosen activity. For example, if there are two restaurants, A and B, and the decision is to go to restaurant A, then the opportunity cost would be the lost experience at restaurant B. However, in economic situations, opportunity cost can involve much most complex components. In the example of 9/11 victims, calculating the refunds for loved ones using the described method does not reflect the true opportunity cost of a life.

The three measures that officials use to set payments are economic loss, pain and suffering reimbursement subtracting life insurance paid. The money for pain and suffering subtracting life insurance represents sunk costs that are forgone in life. The economic loss consists of working salary over a lifetime. Added to those funds are "hedonic damages" that consist of values of lost experiences.

While it's easy to estimate salary, the value of experience is almost impossible to calculate. Economist Stan Smith put the value of life on the willingness people would like to pay to avoid death. There are many products and services that save lives and Smith average them all to be $ 4 million. However, he doesn't consider the marginal costs and benefits of these items. As he describes, 100,000 $50 home safety devices will save one life. Therefore, the marginal cost of one device is $50 while the marginal benefit is only 1/100,000 of one life. A logical person would consider that a minimal benefit and turn to other products that could save his life. $4 million would be over-inflating the damage because only the most effective life-saving features would be purchased and considered.

As much as economists would like to put a price on human life, they cannot expect to predict human choices that determine the value of life. The opportunity cost of the victims in the 9/11 attack is ultimately life, or "hedonic damages", not just the money that they might have been able to acquire for the rest of their lives. The life experiences does not only comprise of the life saving gadgets, but also the human emotions and the opportunity of participating in daily activities. Therefore, the true opportunity cost of a life is impossible to put into monetary policy, however, noble and compensating the rewards are.

Supporting article can be found at The New York Times.