A. The word "hedonic," first of all, does not mean hedonistic, which is a modern term. The word hedonic is an economic term and commonly used by economists. It refers to the non-financial attributes of something. So, for example, I in Chicago have a job which has a certain pay. That would be the monetary attribute of that job, the monetary characteristic of it. The job is also in a bank building, so it is safe. That's a hedonic attribute. It is only several blocks from my house, so that is another attribute. People can raise or lower their wages or increase their medical benefits, but hedonic attributes generally come in a fixed set. If there is a restaurant near your place of employment that you like, that can be a hedonic attribute or an attribute that you value. It doesn't have a strict price to it. It has a value to you, nonetheless. --from the testimony of Stanley V. Smith in the court record of Ferguson v. Vest
What is the value of a human life? How much is it worth to you to watch a sunset, read a book, slurp an ice cream cone on a summer day, play with your children, bite into a sun-warmed tomato, feel the air on your face as you ride a bicycle?
Economist Stan Smith thinks he has a formula that allows him to tell you--to place a dollar value on life's joys and promises. It has earned him, if not a page in the history books, at least a footnote in the annals of American jurisprudence. The phrase Smith has added to legalese is "hedonic damages." Word of it has been spreading in the last year, first in the legal press, and increasingly in the mainstream news media--the Wall Street Journal, Newsweek, the Chicago Tribune. Court victories and a helpful PR woman have encouraged the use. And Smith's boyish, all-American good looks, knowledgeable manner, and evident sincerity have made him a highly desirable, nationally known expert witness.
How is a jury to put a price on human life in cases of wrongful death or disability? Traditionally juries have totaled up the amount of money the injured party was likely to have earned in her or his lifetime. But is mere wage-earning capacity enough? "Would you value George Washington's life for his general's salary?" asks Smith rhetorically. "He wasn't too highly paid as a general. The lost paycheck is only part of it." Hedonic damages take into account the age and prospects--emotional and intellectual as well as financial--of the wrongfully injured or the deceased.
Smith, 42, is obviously a man who places a high value on the hedonic value of his own life. Stylishly trim and bespectacled, with curly, light brown hair brushed into obedience, he's an economist trained at the University of Chicago, PhD candidate, treasure hunter, entrepreneur, and sometime marathoner. He's fluent in several languages, including the Yiddish he learned from his mother. Divorced and the father of two, he shares an "equal parenting agreement" with his ex-wife. Smith once turned up at Francis Parker School in a clown suit "to talk on the value of making mistakes," he says. "Mistakes are midpoints to success. Failures are a necessary ingredient to producing success."
But Smith does not come across like a man accustomed to failure. He is president of a firm, Seaquest, that discovered a Spanish galleon, the Concepcion, sunk in 1641 off the coast of the Dominican Republic. "It was the Mount Everest of treasure hunting," he says. "Jacques Cousteau once made a documentary about trying to find it." He displays his key ring; valued at $2,500, it holds one of the 60,000 pieces of eight found in the wreck. When Seaquest discovered the galleon in 1978, the haul was appraised at $32 million.
Smith is productive in less romantic ways: he works on his PhD, helps develop computer software, writes articles for legal publications, and works with colleagues on projects like the Stocks, Bonds, Bills, and Inflation (SBBI) yearbook, a guide for investment professionals. And of course he testifies, speaks (recently for the American Bar Association's national convention in Honolulu), and writes about his special baby, hedonics. He estimates his workweek at 45 to 50 hours, plus another 12 for work on his PhD.
He gets a good hourly wage. "There's usually a report fee--that's $1,800 and up, depending on the type of loss--to produce the analysis," he says. "My hourly fee is from $180, and there's a $45-an-hour deposition and trial surcharge."
A new venture is the National Academy of Economic Arbitrators, a for-profit consulting group with several members who give hedonic testimony. "It will reduce the kinds of costs people bear in these types of disputes," he explains, "by allowing them to arbitrate instead of going to court. Even a court could come to us and say, 'We'll have the jury decide liability,' but instead of conflicting testimony on the amount of the award, they could have a court-appointed arbitrator. This is assuming that the jury finds liability, of course. It's an advance in dispute resolution."
Smith points out that trials are often held just to determine damages. "The court system is too expensive and too time-consuming--but the NAEA can hold a hearing and render an opinion in 30 days, for a cost of several thousand dollars."
Smith has given expert testimony in dozens of both business and personal-injury cases--economic analyses of losses of various kinds. Asked in court about the objective of his damage appraisals, Smith says: "It is to determine the value, usually, of a stream of money, sometimes lost earnings. I've testified to the value of a stock price in a public takeover, and so determined the appropriate or fair price to pay a shareholder. In personal-injury suits, it involves looking at an element of loss, whether it is lost earnings, a loss of household services, the loss of a business and/or an injury, and making an attempt to value the impact of those losses in monetary terms."
Smith elaborates: "There are dozens of studies on how people value lives: what we pay as consumers to buy life-saving devices--smoke detectors, seat belts--what is spent, how many lives are saved. We build fences around swimming pools. If somebody takes a risky job, there's extra pay to take extra risk. The government has set standards that range from $ 3million to $ 10millin [as the amount appropriate to spend, in several different contexts, to ensure the safety of a single life]. How much extra will society pay for fixing an airliner with government safety recommendations, or for ambulance service with a good record on heart attacks? The value cluster is in the several-million-dollar range. That's the kind of data I present to a jury."
Smith is unwilling to go into any more detail on the data that shape his estimates of the value of a human life. "Age is very important; it's based on life expectancy. There's no direct evidence that a sign painter's life is worth any more or less than Picasso's life." He calls his formula "proprietary," particularly when it comes to the other economists who have called him seeking information. But, as he says, "IBM does not send trade secrets to Compaq Computer."
A shooting in Joliet is what inspired Smith to devise the formula. A cop named Willie Berry shot a 19-year-old kid named Ronald Sherrod to death for no good reason. On Saturday, September 8, 1979, Sherrod, a mechanic who worked in his family's garage, was accompanying a customer--who turned out to be a robber on the lam--to try to help him start his car. The pair were stopped by Berry and his rookie partner. The unarmed Sherrod was, it is presumed, reaching for his driver's license when Berry, who had a record of behaving abusively toward citizens, fired on him, shooting him in the head and killing him instantly.
"Sherrod was a civil-rights case," says attorney Douglas Rallo. Rallo, who at the time worked for Horwitz & Horwitz, of Chicago, was cocounsel for the boy's father, Lucien Sherrod. "It's not a typical wrongful-death case: it represents misconduct by agents of the state. You want to compensate the family, you want to keep it from happening in the future," says Rallo. "Hedonic damages can be a deterrent. It's an idea whose time has come."
Rallo recruited Smith, with whom he was acquainted through his brother, who is also a lawyer. "I called him and said I had three precedents [in which something like hedonic damages had been allowed]; I'd like to put on an economic test and prove these concepts--can you help me out? The rest is history.
"Stan is very highly qualified, very articulate, and I think the best thing about his testimony is that he has the ability to take complex, technical economic concepts and explain them to the layperson. He's sincere and credible."
Smith estimated that Sherrod's father suffered a loss of $513,000 because he was unable to take his planned retirement, and he estimated a loss of $598,000 to Sherrod's estate because of lost wages. The hedonic loss he estimated at $1.5 to $15 million; the jury awarded the estate $850,000 for the value of the pleasure of Ronald Sherrod's life. That judgment has been upheld on appeal. And more cases utilizing the concept have been working their way through the legal pipeline.
Until recently, hedonics was usable only in civil-rights cases of wrongful death, cases in which punitive damages were desirable. Its use is being tested now in non-civil-rights and personal-injury cases. Certainly Rallo believes it should be usable more generally. "The law should be fair and give full compensation to victims of misconduct," he argues. "To do full justice, this ought to be allowed in every kind of wrongful death. There's an old saying--'It's cheaper to kill than to maim.' That has its origin in legal fact. The legal system ought not to perpetuate the situation. It ought to allow full, lawful redress. And hedonics is the answer to that problem, absolutely."
A. The next column is the, what I call hedonic reduction. . . . Resulting from the pain, the disability, the disfigurement, based on the assessment of [the psychiatrist], which was at roughly the 83 Percent level ["emotional catastrophe"]. Based upon what we pay to save life in this society, a consensus, we value life in a range, I believe, of $2.7 million dollars. That figure is a conservative estimate. There have been results that have come out in the last year, results showing that we value life conservatively at three and a half, four million. Government economists are actually coming up with figures soon to be published in the five to six million dollar range. Using the $2.7 million figure, which is what we as a society are willing to spend, and I don't mean that we'll write the check for 2.7 million, but we'll buy safety [at] that rate. That translates for the statistically average unknown person to about $63,000 per year life expectancy. An 83 percent reduction in the ability to experience the pleasure or value of life is a reduction of about $50,000 in 1986-'87 dollars. --from Ferguson v. Vest
Eva Ferguson is a retired office worker from downstate Roxana. In 1982, she was treated for a confirmed cancer of the vagina. In 1986, when she was 63 years old, she was diagnosed by her gynecologist as having cancer of the uterus; he prescribed radiation treatments, which shrank her bladder and left her unable to urinate normally. But in later tests, no cancer of the uterus could be found.
Despite the alleged malpractice on the part of her gynecologist and radiologist, Ferguson's injury would have brought her little recompense if the court had used the traditional basis, lost earnings, to calculate damages. If you're not working, after all, you can have no lost wages. Her attorney, Merle C. Bassett, called in Smith.
Bassett, the "Q" to Smith's "A" in the trial transcript excerpts quoted, comes across as a jovial man and a very smart lawyer. Wood River, where he practices, is near Saint Louis, in what he complacently calls "notorious Madison County--one of the damages capitals of the country." It is, he says, one of the top three counties in Illinois for giving damages awards, along with Saint Clair (East Saint Louis) and Cook.
"I'd read an article by Stanley Smith in the ABA journal, and then a Wall Street Journal piece on the Sherrod case," says Bassett, who later made the news himself with Ferguson. "And I immediately contacted him. I had four different cases that I thought he would be useful in if he proved to be worthwhile."
What's his definition of "worthwhile"? "Expert testimony can now be used in a lot of cases where formerly it couldn't," he says. "I had cases where the clients had been very severely damaged, although they didn't look it. It's an area in which his value could be useful. The result in the Ferguson case proved conclusively that I was right, at least this one time. It impressed my colleagues, I can tell you!"
Bassett, who says he found Smith "extremely easy to work with, very cooperative," is now trying to get his other three cases to trial, and he plans to use Smith's testimony again. He's playing what he calls "adversarial games" with the other side: "The defense lawyers are rather upset, because they see the possibility that using the formula may unlock the door to higher verdicts. They're definitely going to fight it as hard as they can. They've always had prostitute doctors that never find anything wrong with plaintiffs--before long, they'll be coming up with economists to contradict Mr. Smith. They have to admit there's something to the value of the pleasure of life. They'll have to attack his figures and come in lower."
The jury in the Ferguson case, true to their Madison County reputation, came in with figures higher than Smith suggested. Asked for $130,000 for past disablement and disfigurement, the jury settled on $200,000; asked for a rounded-down $880,000 for future disablement and disfigurement, they returned with the $882,000 Smith had originally calculated. They also gave the plaintiff a quarter of a million dollars for past pain and suffering, and three-quarters of a million for future pain and suffering. Hedonic damages were spread out over these four categories. The jury also awarded $50,000 for past medical expenses, and $200,000 for future medical costs, for a grand total of $2,332,000.
How much would Eva Ferguson's problems have been worth without Smith's testimony? "That is the subject of a great amount of speculation," responds Bassett cheerfully, pointing out that Ferguson is now 65 years old--an age that, in terms of damages, is traditionally not worth much. "I had a problem there, because she looked nice, like nothing's wrong with her. But with no vagina, she has to get that opening stretched every three weeks to keep her bladder functioning. But she doesn't look injured. It would be a lot easier if I could bring clients like her in on a wheelchair or a backboard. In general in this kind of case, getting the proper awards is difficult.
"I'm a blinkin', ruddy-eyed liberal. I think a person should be adequately compensated for injury, and you can't tell me the insurance companies aren't making money."
Bob Schmieder, the defense attorney for Dr. Mucci, Ferguson's gynecologist, blames the jury, in large part, for the high damages awarded Ferguson. "We had no alternates [for the jury]--because the alternates were looking even worse than the actual panel," he says. "We went with ten people, which the defense just never does." He notes that there are plans to appeal the verdict.
Schmieder calls Smith's testimony "a lot of speculation." "He's trying to place a value on human life based on government statistics," he says. "That makes no sense.
"It's so speculative. He talks about the amount of money we'll spend for safety. Well, the amount of money spent on safety in a coal mine is exorbitant compared with what we spend on safety in an office. And as far as the hedonic pleasure of life--what pleases you may not please me. What pleases a celibate priest is certainly not going to please Wade Boggs."
Schmieder agrees that Smith "makes a very good witness. He can certainly handle the questions. He's no dummy."
Schmieder and his client had good reason not to expect such a large award to the plaintiff. After all, Schmieder points out, Ferguson had had confirmed cancer in the same area four years before; when her 1986 Pap smear showed cancer--a test, he says, that had a statistical probability of accuracy of 95 to 98 percent--the doctors acted swiftly; and the fact is that the radiation may have destroyed the cancer, as it was intended to do. "We expected to be looking at $300,000 to $500,000," says Schmieder. "I thought the award was way out of line."
Predictably, the insurance industry is cool to the concept. "It sounds great--but the money has to come from somewhere," says defense attorney Jay Tressler, whose clients include those who would have to pay.
"Obviously, it's not looked upon favorably," says Rick Barry, who manages the legal researchers who investigate claims against Kemper Insurance. "If the courts impose it, the insurance industry will ultimately have to pass the costs on to consumers.
"How do you put a monetary value on George Washington? What's the value of your life, or mine? There's no amount of money in the world that could pay for them! It's much too costly a principle to adopt. There's not enough money in the system--the system could not operate upon those principles."
Smith responds, "The system does operate on those principles--but now the victim is paying, by not getting enough compensation, and the wrongdoer is getting off lightly."
How can Smith justify giving Ronald Sherrod's father money for the value of his dead son's loss of pleasure? "That's a legitimate question for society to ask," Smith responds. He sounds as though he's been asked that one before. "I think it's understood that there's been a loss. The state legislature permits family members to file for the loss of companionship. Even when there are no survivors, [the state] still wants to punish wrongdoers."
Perhaps, he muses, "punitive awards should go not to the [estate of a] specific victim--they already get compensatory damages--but to society at large. I could see a sharing between the specific victim and society at large--after all, they're all at risk from this kind of behavior." To what branch of the state would Smith award the damages? How would they be divided and for what would they be used? "It's a good question whether it's local, state, or federal," he says. "You'd have to look at who's assuming the most risk."
Thomas Demetrio, of the Loop law firm of Corboy & Demetrio, is one of Chicago's best-known personal-injury lawyers. He is the immediate past president of the Illinois Trial Lawyers Association, the present treasurer of the Chicago Bar Association, and a member of the Supreme Court committee on instructions to the jury in civil cases. Because he works the plaintiffs' side of the street, his reaction to a question about hedonic damages is unexpected: "I would not use Mr. Smith--I don't believe in the thing he has called hedonic damages. Quite frankly, I don't believe that in law there is anything that permits it in wrongful-death cases. Surprised you, didn't I?" he laughs.
His voice fading and blipping because he's on the car phone, Demetrio pulls no punches: "It's a bunch of gobbledygook." He believes that the Illinois Wrongful Death Act, which governs the kinds of losses for which survivors can sue, doesn't allow suing for the loss of someone else's pleasure. As for personal-injury cases, he thinks hedonic losses are already covered under disability, disfigurement, physical pain, mental suffering, medical expenses, and loss of income. "The loss of the ability to play softball on Saturday afternoons in Grant Park is covered already, under disability. And it's the jury's function to decide compensation, not some economist's. I would never put on a so-called expert on the loss of enjoyment and how much it's worth. It's a little bit presumptuous."
Although he maintains that hedonics is "nonsense," Demetrio says that Smith has marketed himself very well. "And lawyers have fallen for it. He's got a marketing person who has called us, trying to get us to use him, but I wouldn't do it. It's the lawyer's task to supply evidence to the jury as to the extent of disability, so they can determine what just, fair compensation is. I don't believe a lawyer would ever want to be bound to what some expert, looking in his or her crystal ball, thinks is right."
Smith says he's not surprised that a high-priced PI lawyer like Demetrio isn't interested in him, because his kind of testimony would tend to limit the damages Corboy & Demetrio typically rake in: "I can believe that, to the kind of attorney who's used to getting awards in the several millions, hedonics may seem limiting." That firm, he says, takes only surefire cases, those certain to bring in awards of at least $1 million. Then it farms out the cases that don't make the cut to other law firms, getting a piece of those awards, too.
Because Smith limits the actual value of life to a couple of million dollars, mere personal injury could never go above that. And Corboy & Demetrio, since they always deal in such high figures, are not typical. "Most of the personal-injury work seen by other lawyers," Smith points out, "is not in the stratosphere that Corboy & Demetrio typically work in."
As for the charge that he's insulting the jury or usurping their function, he points out: "The Seventh Circuit called my concept 'invaluable' to the jury. That's an unbiased group of people, the judges.
"I guess the truth is that I resent attacks on me or the concept that are not grounded in the facts, that are not grounded in a study or an understanding of the concept."
Perhaps hedonics can put the brakes on runaway jury awards. Certainly Smith seems to think so.
"This concept can be used not only by plaintiff attorneys, but used by defendants to mitigate against unreasonably high awards," he asserts. "For example, in the G.D. Searle Copper 7 [IUD] case, a woman claims she lost her fertility because of the device, and she gets an $8.5 million jury award. That's an example where a defense firm could have brought in a test as to the value of life--which is in the several-million-dollar range--and found that the ability to conceive is maybe 20 or 30 percent of that. Then the loss of fertility is 20 or 30 percent of several million dollars. You come up with damages of six, seven, eight, nine hundred thousand dollars--and that's a far cry from almost $9 million.
"They could use it in counties where the jurors are likely to produce high verdicts. If you think the jury might tend to run away with your pocketbook, it might be a good idea to put in a stop-loss. The defense might say, 'We don't think we're guilty, but we'll settle for $800,000.' If the plaintiffs refuse to settle, the defense goes to the jury and, using hedonics, says: 'This is all this case is worth.'"
Bruce Olson, a defense lawyer in Milwaukee, recently responded to an article by Smith in a legal periodical. He has also taken depositions from Smith several times, and once managed to keep his testimony from being admitted. "The thing I think is significant," says Olson, "is that his concept of hedonics damages is as an award for the loss of ability to enjoy life. He equates disability with the loss of life, then says, 'Let's look at what American society is willing to pay to avoid death.' It's a questionable legal premise. You can't necessarily equate Stanley's theory with what the law is trying to accomplish. My real problem with his approach is based on that."
Olson prevented Smith's testimony in an aviation case: after her husband died in a plane crash in Detroit, the widow sued for damages in Milwaukee, where she lives, because Wisconsin laws are more lenient about what can be admitted. "The judge said that economic analysis has no bearing on figuring the loss of companionship," says Olson. "It usurps the function of a jury, and runs the risk of improperly persuading them, because you've got some academic who appears to have great credentials.
"His basic theory is based on the cost of death and avoiding death, but if you're injured, you're not dead. And the jury is supposed to decide these things--not Stanley using his economic models.
"It's a complex area, it's a cutting-edge area. The thing that's new is Stanley's approach to try to put a dollar amount on [pleasure]. He's clothed with academic purity--the great danger is that it's an attempt to buffalo an unsophisticated jury into giving a large dollar award. You can pretty well guarantee that the amount will be somewhere in excess of $1 million."
And is there a possible value to the defense, as Smith promises? What about that Searle case? "I have difficulty accepting that, because the loss of the ability to conceive a child, in my mind, has no bearing in the analysis he uses. I don't think it would be relevant at all. I don't accept his proposition that it can be used widely by the defense--he hasn't given us any other examples."
In Olson's opinion, Smith has taken something that might have some legitimacy in civil-rights cases, as a deterrent to the state's misbehaving, and erroneously tried to apply it more generally. Olson points out that this is "a right created by statute rather than common law. Stanley makes it sort of all-purpose. He's kind of flexible.
"I don't see how Stanley's theory realistically could be applied in a way to bring verdicts down. I think it is a technique, a tool, for plaintiffs to use to put another line on the balance sheet, along with all the other things they're asking to be compensated for--pain and suffering, past and future, economic loss. If you add loss of pleasure, you're starting at over $1 million. What they're doing is jacking it up--you are really starting to crank those numbers up.
"I personally think pitching it to the defense is kind of a marketing concept for him. But he knows his bread's going to be buttered by the plaintiffs, not the defense."
"In general, it seems to me that accident victims ought to be able to receive damages for the diminution of life," says federal judge Richard Posner, who notes that he has not yet had a case involving hedonics before him. "In cases of disfigurement, which don't reduce [the victims'] earning powers, they receive damages--which is really for happiness. It's a real loss, as real as pain and suffering. I don't see why they shouldn't be compensated for it. I do see a measurement problem."
Posner points out that the idea of hedonic damages is not really new: "Economists have been discussing it for 200 years. I'm personally sympathetic [to the concept]."
Thomas M. Crisham is president of the Defense Research Institute and a defense lawyer with Hinshaw, Culbertson in Chicago. He has never met Stan Smith, but says he would fight any attempt to put him on the stand. He doesn't care for Smith's concept or economic models, and contends that no state's wrongful-death statutes have provided for hedonic damages in the loss of life. As for awarding hedonic damages in personal-injury cases--"That's as old as tort law!" he says. "We have always provided that a plaintiff can collect for future suffering, future disability--if you're blinded, you're entitled to be compensated for the loss of the ability to see your bride, or your children. What I see as improper in the courts is the acceptance that someone such as Smith possesses some expertise to explain to a jury just what those pleasures are worth--that, in my opinion, is just nonsense."
Crisham, who points out that "hedonics hasn't done very well in the review courts," doesn't believe that it's possible to put a dollar figure on the value of a single life or on any of life's pleasures. He gives a hypothetical hedonic analysis: "Let's say he gets up on the stand and says, 'Crisham likes to play golf; he likes to play golf three times a day. He has a 25-year life expectancy. My research shows that the average amount Americans pay to play golf is $50.' And he gives the jury a value for my playing golf. That's just hocus-focus-pocus! There is no rational connection between the two. It's like, how much would I spend to educate my children? It might be much more than the average. Or I might be willing to spend less. And look at how much we spend on tobacco, on cigarettes and pipes and cigars. Does that indicate how little we value life? What if the decedent's greatest pleasure in life was beating his wife? Are we going to pay his widow for the loss of that pleasure?"
Although he says he has no problem with admitting different criteria for figuring damages, "I have a real problem with admitting someone to tell the jury what they're worth. There's a whole area of expert witnesses--there's a whole industry of expert witnesses that never existed 20 years ago. There are thousands of people who do nothing but act as expert witnesses! There are doctors who don't practice medicine, engineers who don't practice their profession.
"You have to have expert witnesses in appropriate cases, in product liability or professional liability. In those cases, the plaintiff can't even get a case to a jury without expert witnesses." And what about Smith's idea that defense lawyers can use hedonics to keep damage awards down? "I don't give that any credence at all," says Crisham. "In my case, you'd bring in someone else to say, 'Oh no, in my opinion the value of playing golf is only $20 a round.' Smith would love it--it would give credibility to an area where there isn't much credibility."
Smith maintains--and the thick sheaf of letters from happy plaintiffs' lawyers tends to back him up--that his testimony helps to settle cases more quickly, often before they even go to trial. Some testimonials from satisfied clients:
"We were very pleased with the assistance you provided us in the Amanda White case. Just before the case was argued to the jury, we were able to negotiate a settlement which was most acceptable to our clients."
"All of us were pleasantly surprised and delighted, particularly with your response and demeanor during the cross-examination by Neil Freund, Counsel for the City of Dayton. In what became a very meaningful and philosophical 'point-counterpoint' session between you and Mr. Freund, your depth of knowledge and understanding of your topic became clear and your pleasant, but professional, manner of responding was refreshing."
"I believe your testimony was very enlightening to the Defendants as to the actual amount of damages that they could be exposed to and I believe that your testimony lurched them into a settlement posture. You're a leader in your field; keep up the good work."
"It's only when one side expects to win the lottery that you go to court," says Smith. "If this testimony produces more predictable results, it lowers litigation costs, which should lower insurance costs."
Dr. Ted Miller, a senior resident associate of the Urban Institute, a Washington, D.C., economic think tank, believes that within five years hedonics will be a standard part of jury awards. He's not certain it's a good thing.
Despite a recent Wall Street Journal report to the contrary, Miller and the institute do not give expert-witness testimony for defense firms on the topic of hedonics. He says, "I'm not on either side. We're trying to figure out the proper policy. . . . My feelings are mixed. I don't think the system can afford [hedonic damages], and I don't want to pay the insurance costs for it."
Miller dislikes the term "hedonic damages": "I think it's jargon." And he gives Smith's guidelines a mixed rating. It's appropriate, he thinks, to look at what people spend to keep themselves safe, and using federal guidelines is "not too inappropriate." But, he adds, "if you're looking at the value on actual federal spending decisions, you're starting to get shaky--there's a lot of politics involved, and the numbers are not closely related to reality."
Miller warns that the concept should be taken seriously, however. "Defense attorneys have to start treating this seriously. Stanley Smith's test is of fairly good quality; he's spent a lot of time thinking about it. But a lot of other 'experts' on hedonic damages are not really very knowledgeable." He thinks defense attorneys should not only challenge this type of test in general, but also question specific errors in hedonic-damages analysis. He would like them to "question the values bouncing about." Although he thinks the values Smith gets from his formula will prove to be too high, he's advised Smith to keep using what he's got for now. The dust will settle, he thinks, after "the next five years of economic arguing."
"I think the legislatures will intervene--impose a cap on this or say it's not appropriate," says Miller. He points out that increasing liability suits have already caused problems for manufacturers, especially of safety products and vaccines: doing business becomes too expensive, and the products are simply withdrawn from the market. There's only one football-helmet maker still on the job, for example, and government insurance is now necessary for vaccine manufacturers to continue making their products.
Aside from the cost to the public, Miller says, "A second problem is that if we fully compensate the loss from a given injury, we remove the incentive to avoid injury. People take more care if they're not going to be compensated. You're going to take a lot less care stepping off the bus if you know that if you break your leg you'll get $ 100,000--maybe you don't care so much about walking, but the money looks pretty good. In some states where they've increased workers-compensation benefits, they've found that the injury rate goes up at the same rate as the increase in benefits."
In Miller's view, the greatest danger for the insurance system is overlarge awards during the period of uncertainty while the acceptability of hedonic damages is thrashed out. "Five years from now," he says, "it may be a routine part" of personal-injury damages.
Q. How about for her pleasure of living, did you make a reduction for that, the fact that she at age 77 would be different than when you are 27?
A. That's right. It is different. But the pleasure of living doesn't necessarily depend upon our ability to perform household services. I will assume that the value we derive from each year's life is the same over time, although there, I think, is beginning to be some evidence that we actually enjoy each year more and more as the years go by as we determine how to cope with life more effectively and get more value from it. Clearly there is, at least in my society, the thought that older people have more experience and are wiser. Not always true. But something at least over centuries that has been a conventional wisdom. I have assumed that each year's value is the same until she dies. . .
Q. Thank you, sir. Now, would you refer to what has been marked as Plaintiff's Exhibit 20?
A. 20 is nothing more than adding up the last table and the first table. It is the losses prior to the trial date, which is in 1989, and it is the losses subsequent to the trial date through her life expectancy, and it adds the past and the future.
Q. What is that cumulative total there?
A. In present value terms, just a hair over $1 million, $1,019,000, $1,019,272. --from Ferguson v. Vest
"Only God knows what we're worth--if there is one," says Smith. "What I do is give guidance to the jury, economic insight. They couple that with their own religious and philosophical view of the planet and this existence, and arrive at their own conclusion.
"Personally, I get a lot of gratification out of this. It's one thing to write an article about it that gets stuffed into some economic journal; it's another to have a case like Sherrod or Ferguson that gets results. I cast forth an idea, and divide the world into those who believe it can be done and those who believe it can't be done. There's a synergism there. It makes people ask the right questions. In the absence of casting forth ideas, you don't have controversy--and you don't have progress."
Art accompanying story in printed newspaper (not available in this archive): photos/Bruce Powell.