Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Illustration of tradeoffs in car safety

In this video, Milton Freidman explains the tradeoffs between making cars more safe versus the cost of doing so.

The questioner, who hasn’t thought the issue through very well, illustrates the confusion on the issue. He objects to Ford designing the Pinto car to exclude a $13 part and in doing so costing 200 lives a year. The breakeven point is $200,000 per life.

Let’s look at those numbers.

Let’s stipulate those facts and numbers are correct. Don’t know if that is the case, but let’s assume so. Don’t know if that supposed memo actually exists, but let’s assume so.

That means it would have cost Ford $40,000,000 to put that part in all the 3,076,923 Pintos they built.

Dr. Freidman devastates the questioner by pointing out this is not a moral argument of principle. What the questioner is arguing is the value used. He believes the $200K number should be higher.

And that is the debate.

What value would you pick?

What if the part cost $1.30? That would mean a total cost of $4,000,000. That implies a value per life of $20,000. Should Ford have put the part in?

What if the part cost $65? Total cost to Ford and their customers is $200,000,000. Implied value is $1 million per life.

How about $1,300 for each part? Keep in mind we are getting into the range of a large fraction of the total cost for the car. Total cost to customers is now $4,000,000,000 (that’s 4 billion). Implied value per human life is $20,000,000.

So, you tell me. At what per unit price do you think Ford should have included the part?

  • $1.30?
  • $13.00?
  • $65.00?
  • $1,300?

Pick your answer and I will tell you what number you used for the value of one life:

  • $20,000 or
  • $200,000 or
  • $4,000,000 or
  • $20,000,000.

What else could society have done with the $4M, 40M, $200M, or $4,000M?

Link: http://www.youtube.com/watch?v=faSa3r8WIU0

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