"Take the nubmer of vehicles in the field, A, multiply by the probabilty rate of failure, B, multiply by the average ouf-of-court settlement, C. A x B x C = X. If X is less than the cost of a recall, we don't do one."
In all honesty, how would you recommend doing cost benefit analysis for a car manufacturer? There will always be safety risks to the drivers, after all.
Yes, perhaps the law should be more strict , but in any case there is a value -- there is a number which sometime you'll have to assign even implicitly to a customer's life.
But consider the possibility that the law had a loophole (or the law is simply inadequate in light of common expectations from the population) which brought the maximum litigation from crashes to a very low number. Although this simplistic view would suggest a very low cost, that would be unrealistic -- the actual cost should include heavy brand damage from consumer distrust in the products and even brand damage from raw ideological/moral basis. This is way promoting values inside companies makes sense -- you can't neglect humans have personal values and sometimes make non-economic choices to stay aligned with those -- so you have to adjust your "psychopath" economics towards consumer irrationality. In the end I suspect the optimal choice is much closer to Tesla's reaction than GM's.
I see two issues with your comment. First, the quoted formula doesn't assume a zero value for human life. Second, even if you assign an explicit finite value to human life, a lot of people will call that psychopathic.
> First, the quoted formula doesn't assume a zero value for human life.
I suppose technically it could value human life at a million zillion and three, but it's irrelevant because that value appears nowhere in the equation.
> Second, even if you assign an explicit finite value to human life, a lot of people will call that psychopathic.
I said "nonzero," not "finite." I suppose I should have said "positive." Nitpicking aside, the point is that being utterly indifferent to the life or death of innocents, except where it may directly threaten your net worth, is pretty psychopathic.
A similar equation is fine, but 'average settlement' is probably too low. Add 10 million to C before multiplying and you have a better balance, with a margin of error on the side of safety.
Corporate American style. You want to guess the number of times an airplane design defect that threatens the life of passengers is allowed to be corrected "over time" -- basically because fixing them ASAP would be too expensive?
At the airplane industry it's the government that does this calculation, with a publicly known value of C. Also, airplanes don't have the kind of problem that cause an accident by itself, every issue can be corrected on several levels, and normally when the proper fix isn't instantly applied some other action is done to attenuate the problem.
On any advanced country, around here it calculates nothing, even yelling "Are you insane? Do you know how many hospitals we could build with that kind of money?" won't make they think about numbers.
