Battlepanda: Cost benefit analysis, properly understood


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Friday, January 20, 2006

Cost benefit analysis, properly understood

I piled the scorn on Stephen Landsburg for his vile column justifying pulling the plug on Tirhas Habtegiris here, but I didn't offer much in the way of analysis. Well, Thomas Frank basically wrote what I would have if I were a whole lotta smarter.
Mr. Landsburg completely ignores moral emotions like sympathy and empathy. As economists since Adam Smith have recognized, economic judgments are often tempered by these emotions. The upshot is that large numbers of people benefit when a patient in imminent mortal danger receives treatment. Had the opportunity presented itself, many would have eagerly contributed to Ms. Habtegiris's care. But organizing an endless series of individual private fund-raisers for such cases is impractical. So, we empower government to step in when the need arises.

Mr. Landsburg's argument finesses the important distinction between a "statistical life" and an "identified life." The concepts were introduced by the economist Thomas C. Schelling, who observed the apparent paradox that communities often spend millions of dollars to save the life of a known victim - someone trapped in a mine, for example - yet are often unwilling to spend even $200,000 on a highway guardrail that would save an average of one life each year.

This disparity is not economically irrational, Mr. Schelling insisted, because the community values what it is buying so differently in the two cases. It is one thing to risk one's own life in an unlikely automobile accident, but quite another to abandon a known victim in distress.

By offering a transparently unsound economic argument in defense of the Habtegiris decision, Mr. Landsburg unwittingly empowers those who wrongly insist that costs and benefits have no legitimate role in policy decisions about health and safety. Reducing the small risks we face every day is expensive. The same money could be spent instead on other pressing needs. We cannot think intelligently about these decisions without weighing the relevant costs and benefits.

But using cost-benefit analysis does not make one a moral monster. In the wealthiest nation on earth, a genuine cost-benefit test would never dictate unplugging a fully conscious, responsive patient from life support against her objections. Mr. Landsburg's argument to the contrary is wrongheaded, not just morally, but also economically.

It's "Read The Whole Thing" material. Especially if you are not familiar with the facts of the Habtegiris case. People often think that there is a dichotomy between conventional morality and cost-benefit analysis because crude, first-order cost-benefit analysis often contradicts what we hold deeply to be true. But when you refine the cost-benefit analysis, you will often find that the contradictions resolve themselves. I believe this is true for utilitarianism as well. We should learn to see those "analytic" approaches to moral problems as another tool in helping us make decisions. Much like a map and a compass are both tools to help us get around. We don't have to choose one over the other -- they both have their strengths and weaknesses.