Valuing life: experimental evidence using sensitivity to rare events

Global environmental phenomena like climate change, major extinction events or flutype pandemics can have catastrophic consequences. By properly assessing the outcomes involved - especially those concerning human life - economic theory of choice under uncertainty is expected to help people take the best decision. However, the widely used expected utility theory values life in terms of the low probability of death someone would be willing to accept in order to receive extra payment. Common sense and experimental evidence refute this way of valuing life, and here we provide experimental evidence of people's unwillingness to accept a low probability of death, contrary to expected utility predictions. This work uses new axioms of choice, especially an axiom that allows extreme responses to extreme events, and the choice criterion that they imply. The implied decision criteria are a combination of expected utility with extreme responses, and seem more consistent with observations.