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January 27, 2005
Statistics. That's something that is wrong
Alex Tabarrok points to James Surowiecki's New Yorker article about how people perceive cost benefit analysis. Here's the key graph:While that kind of weighing of risk and benefit may be medically rational, in the legal arena its poison. Nothing infuriates juries like finding out that companies knew about dangers and then "balanced" them away. In fact, any kind of risk-benefit analysis, honest or not, is likely to get you in trouble with juries. In 1999, for instance, jurors in California ordered General Motors to pay $4.8 billion to people who were injured when the gas tank in their 1979 Chevrolet Malibu caught fire. The jurors made it plain that they did so because G.M. engineers had calculated how much it would cost to move the gas tank (which might have made the car safer). Viscusi has shown that people are inclined to award heftier punitive damages against a company that had performed a risk analysis before selling a product than a company that didnt bother to. Even if the company puts a very high value on each life, the fact that it has weighed costs against benefits is, in itself, reprehensible. "We're just numbers, I feel, to them" is how a juror in the G.M. case put it. "Statistics. Thats something that is wrong."
If you've seen Fight Club, you may recall that the job that the character played by Edward Norton had that was the symbol of his utter soullessness was to go to car accidents, determine what defect caused them, calculate whether the benefit of saving them would exceed the cost to the company. Obviously, to the extent to which we'd like companies to run good cost/benefit analyses, we might want to find some way to counter this effect.
UPDATE: Fixed title to match the quote in the article.
Posted by ekr at January 27, 2005 7:17 AM | Filed under:
Comments
I think you may have misinterpreted the juror's comment (at least in your title). As I understand it, the juror was complaining about the attitude of the company--that it was treating the customers as mere numbers, or "statistics". Now, that could be interpreted as objecting to the whole concept of cost-benefit analysis. But it could also be interpreted as a complaint about the power being wielded by the company--that the company could decide when simply to treat the customers as "statistics", and when to "treat them as human beings"--i.e., in practice, how much to weight the appearance of good citizenship and other P.R. concerns in the cost-benefit analysis.
If I'm right, then a simple gesture such as incorporating an outside party (particularly one perceived to be "on the customer's side", such as the government or a consumer's group) into the cost-benefit analysis process might go a long way towards reducing or removing the stigma attached to these analyses. In effect, they might no longer be seen as a demonstration of callous unconcern by the company--even if they involved exactly the same procedure--once an outside party was given "input" (or oversight, if you like).
And it might even produce better analyses, if you suspect--as I do--that corporate cost-benefit analyses tend to run the risk of institutional bias against certain, up-front costs, since these are the costs that other parts of the company feel soonest and most directly.
Posted by: Dan Simon at January 27, 2005 8:30 AM
Hmm.... Interesting theory, however note
that according to the abstract of Viscusi's paper "Internal use of higher value of life numbers serves as an anchor that boosts rather than reduces jury awards." so I think it would be interesting to see if it works.
Posted by: EKR at January 27, 2005 8:49 AM
I think this is more of a framing issue. It seems they always forget to discuss the benefit they provide (presumably) to many people.
Posted by: Pete at January 29, 2005 6:17 AM
Dan's suggestion was part of the original justification for the FDA.
Posted by: Steve Purpura at January 30, 2005 2:25 PM