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  • Writer's pictureMatt

Weighing Up The Pros and Cons: Cost-Benefit Analysis In An Uncertain World

Imagine the following scenario:

You’re a high level, experienced policymaker and a document gets dropped on your desk. As you begin to read it, the basic proposition quickly becomes clear: if you implement the proposed policy, 1,000 lives will be saved. Time is of the essence and delaying the decision will only result in additional lost lives.

What do you do?

Hopefully you don’t act too hastily. An experienced policymaker should know that as well as the benefits, you must always consider the costs involved in implementing any policy. Reading further, you find that it will cost $1 million.

What do you do now?

$1 million is a lot of money but it’s a small price to pay to save 1,000 lives, surely? Can you even put a price on a life? What if implementation costs $10 million or $100 million? The budget is limited, and you were recently asked to sign off on a similar amount to launch a project that would save an estimated 20,000 lives.

Does this change things?

Put that aside. Let’s say that there is no financial cost associated with implementing the policy. Surely now you can go ahead? Hold up. Are there any other non-financial costs? You read on and discover that while the policy will save 1,000 lives, 200 will die as consequence. Collateral damage, if you will.

How does this make you feel?

You don’t like the idea of people dying as a consequence of a policy you implemented, but you recognise the classic trolley problem when you see it – the one where to save five people on a railway line, you have to pull the handle to divert the train, the downside being that your action will kill one person on the other track. In our case it’s 1,000 saved, 200 dead. A net gain of 800 lives.

Does that settle it?

Not so fast. Continuing, you come across another important detail. The average age of those saved by the policy is 75, with an expected five years of life left each. On the flipside, the average age of those who will die as a consequence of the policy is just 30, with an average 50 years of life left. You quickly do the math and realise that the policy will save 5,000 years of life, but will result in the loss of 10,000 years of life.

It’s getting complicated, isn’t it?

Let’s take a step back and say that the average age of those saved and lost is equivalent. Are there any other group differences that would impact your decision? What if the 1,000 saved are prisoners incarcerated for horrific, violent crimes while the 200 lost are honest, law-abiding citizens? What if those that can be saved are from a far-off land, whereas those who will perish are your compatriots. What if the 200 are your, allies, friends or family?

Do you have an answer to this conundrum?

Let’s make things simpler. The policy will save 1,000 lives, there will be no financial costs and no one will die as a consequence. It’s not that simple. What about quality of life? What if millions of people will be made miserable as a result of the policy? Not financially burdened and no reduction in life expectancy – they won’t be pushed as far as suicide – but subjectively they will experience no joy or meaning in life. They will merely exist. How many lives of happiness would you trade for how many lives of misery?

Too philosophical?

Let’s really try and simplify things. The document says that the policy will save 1,000 lives, financially it will cost nothing and no one will die or suffer in any way as a consequence of its implementation. Remember that time is of the essence and more people are going to die if you don’t act quickly.

Now will you implement the policy?

We’re still missing one very important consideration - is the information presented even accurate? How was the 1,000 lives saved number calculated? You read the rest of the document and you’re not entirely convinced by the logic, rationale and interpretation of the data. And what’s more, you do some digging and discover that the person who wrote the document is a major shareholder of a company that stands to profit from the implementation of the policy.

What should you do?

You decide to confront the author of the document. At first, they deny any conflict of interest, but on presentation of the evidence they come clean. Yes, they stand to benefit financially, but it is a good policy, which if communicated in the right way will increase your popularity and job security. Plus, why not invest in the company and make some money for yourself? Even better, your colleague offers to transfer some of their own profit to an offshore account in your name.

How many $s would sway you?

Maybe no amount would tempt you because you’re a good, honest person who would never engage in such corrupt practices like the sociopathic types who disproportionately reach high office. But what if it was enough to set you and your family up for life? What if you had a critically-ill child and the money would pay for their potentially life-saving medical treatment?

Now, what do you do?

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