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Valuing life: Experimental evidence using sensitivity to rare events

Author

Listed:
  • Olivier Chanel

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Graciela Chichilnisky

    (Departments of Economics and of Statistics - Department of Statistics - Columbia University [New York])

Abstract

Global environmental phenomena like climate change, major extinction events or flutype pandemics can have catastrophic consequences. By properly assessing the outcomes involved – especially those concerning human life – economic theory of choice under uncertainty is expected to help people take the best decision. However, the widely used expected utility theory values life in terms of the low probability of death someone would be willing to accept in order to receive extra payment. Common sense and experimental evidence refute this way of valuing life, and here we provide experimental evidence of people's unwillingness to accept a low probability of death, contrary to expected utility predictions. This work uses new axioms of choice defined by Chichilnisky (2000), especially an axiom that allows extreme responses to extreme events, and the choice criterion that they imply. The implied decision criteria are a combination of expected utility with extreme responses, and seem more consistent with observations.

Suggested Citation

  • Olivier Chanel & Graciela Chichilnisky, 2013. "Valuing life: Experimental evidence using sensitivity to rare events," Post-Print hal-01499632, HAL.
    • Handle: RePEc:hal:journl:hal-01499632
    DOI: 10.1016/j.ecolecon.2012.03.004
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    Cited by:

    1. Yew-Kwang Ng, 2016. "The Importance of Global Extinction in Climate Change Policy," Global Policy, London School of Economics and Political Science, vol. 7(3), pages 315-322, September.
    2. DeCanio, Stephen J. & Fremstad, Anders, 2013. "Game theory and climate diplomacy," Ecological Economics, Elsevier, vol. 85(C), pages 177-187.
    3. Ikefuji, Masako & Laeven, Roger J.A. & Magnus, Jan R. & Muris, Chris, 2015. "Expected utility and catastrophic consumption risk," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 306-312.
    4. Julien Blasco & Graciela Chichilnisky, 2015. "Risk Aversion and Catastrophic Risks: the Pill Experiment," Papers 1604.05672, arXiv.org.
    5. Hayato Nakanishi, 2017. "Quasi-experimental evidence for the importance of accounting for fear when evaluating catastrophic events," Empirical Economics, Springer, vol. 52(2), pages 869-894, March.
    6. Andrea Rampa, 2020. "Climate change, catastrophes and Dismal Theorem: a critical review [Klimawandel, Katastrophen und das „Dismal Theorem“: eine kritische Überprüfung]," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 40(2), pages 113-136, October.
    7. Masako Ikefuji & Roger Laeven & Jan Magnus & Chris Muris, 2014. "Expected Utility and Catastrophic Risk," Tinbergen Institute Discussion Papers 14-133/III, Tinbergen Institute.
    8. Thomas Kourouxous & Thomas Bauer, 2019. "Violations of dominance in decision-making," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 209-239, April.

    More about this item

    Keywords

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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