Cost-Benefit Analysis
As already mentioned in other presentations, new technologies which we are developing should respect the values which we hold dear. One of these key values is safety.
However, safety not only implies benefit but also costs. So we have to make a proper economic evaluation of the safety aspects related to the new technologies that we develop, in other words, a cost-benefit analysis (CBA). Broadly, CBA has two purposes:
- To determine if it is a sound investment/decision (justification/feasibility).
- To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.
But, conducting a CBA is not easy! What are the precise costs and benefits? For example, how can one express in a number the value of a human life or a better environment? Or to put it more philosophically: 'how to price the priceless?'
Other than this, CBA also asks how likely it is that an accident will happen? And when: in the short term or in the long term? What are potential scenarios and what are the (unknown) unknowns? These are questions for which the answers are not readymade.
Despite these difficulties, CBA is a widely used and a very practical tool to produce some greater (but not full!) objectivity and transparency. But you have to be aware of the flaws! In the next web lecture, Prof. Genserik Reiniers will explain how to conduct a CBA from the perspective of safety and the issues to be taken into consideration.
Discussion
Of course it is evident immediately that despite the systematic effort undertaken during a CBA to describe every advantage/disadvantage of a given problem, there are some ethical concerns about the practice. Of course one central issue could be summarised as "How can you price the pricless?"
What are other concerns? What are the underlying values behind a CBA methodology? Are these values the ones we want to emphasize? Read this critique of CBA by Prof. Steven Kelman at Harvard University.
Juxtapose this, with Nobel Prize winner Daniel Kahneman's Prospect Theory. In this seminal work, Daniel Kahneman designed simple but ingenious experiments mixing both economics and psychology (thus kickstarting the field of behavioural economics). He conclusively proved that the de facto claim of rational actors in economics is untrue in practice, and that humans are quite irrational when making decisions under risk. In other words, our natural aversion to risk makes us perceive negative losses as more significant than numerically equivalent positive gains. You can find numerous examples in the paper above.
Given these two viewpoints, do you agree with the underlying values behind the practice of CBA? How could it be improved? Or else, what are the alternatives?
