Explaining Perceived Inconsistencies in “Stated Preference” Valuations of Human Life

Abstract

The Relative Utility Pricing model is used to explain the fact that when faced with two “safety packs”, the second giving three times the safety benefit of the first, discriminating respondents will place a value on the second pack that is, on average, twice the amount they say they will be prepared to pay for the first. When the safety packs reduce fatal accident frequencies, the “value of a prevented fatality” (VPF) figures deduced from the valuations of the two safety packs must then be significantly different. Such response patterns on the part of respondents were found in a high-profile study carried out on behalf of a number of UK Government Departments. However, the authors of that study considered the responses “aberrant”, and dismissed their survey in favour of their later one, which they based on a novel elicitation technique and which led to a VPF that was lower by a factor of between 5 and 10. That method has been shown elsewhere to be invalid, which returns the focus to the original study rejected by its authors. This paper shows that the VPFs produced by the first study are fully explicable and cannot be dismissed if the stated preference approach is to be accepted. However, in view of the difficulties experienced with stated preference techniques in the valuation of life, it is clear that an urgent reappraisal is needed of revealed preference techniques if people’s safety is to be safeguarded adequately.