To increase safety at a bad intersection,you must decide whether to install a traffic light in your home town at a cost of $20,000.If the traffic light reduces the risk of fatality by 0.5 percent and the value of a human life is about $10 million,what should you do
A)You should install the light because the expected benefit of $50,000 is greater than the cost.
B)You should install the light because the expected benefit of $30,000 is greater than the cost.
C)You should not install the light because the expected benefit of $20,000 is only equal to the cost.
D)You should not install the light because the expected benefit of $5000 is less than the cost.

Question

Quizplus · Accepted Answer

The expected benefit can be calculated as:
Probability of a fatality without traffic light = 1%
Probability of a fatality with traffic light = 0.5%
Expected benefit = (probability of fatality without traffic light - probability of fatality with traffic light) x the value of a human life
Expected benefit = (0.01 - 0.005) x $10 million = $50,000
Since the expected benefit of installing the traffic light is greater than the cost of $20,000, it is the best choice to increase safety at the intersection.

To Increase Safety at a Bad Intersection,you Must Decide Whether