Suppose a radar-activated braking system that can help prevent crashes is an option on a new car. It costs $600 and reduces the chance of dying in an auto accident by 1/700. The implicit value placed on life by a person who has the system installed is therefore:
A) exactly $600.
B) less than $420,000.
C) at least $420,000.
D) at least $432,000.

Question

Quizplus · Accepted Answer

The implicit value placed on life is calculated by dividing the cost of the system ($600) by the reduction in the probability of dying (1/700), which equals $420,000.

Suppose a Radar-Activated Braking System That Can Help Prevent Crashes