SPRINGFIELD, Ill. (Legal Newsline) - Economist George Akerlof, husband of Federal Reserve Chair Janet Yellen, endorses a $7 billion award of damages against cigarette maker Philip Morris now under review at the Illinois Supreme Court.
Such surveys “are an appropriate method of estimating the market value of a product often employed when there is no market price to indicate consumers’ valuation of that specific product,” wrote their lawyer, Patricia Bobb of Chicago.
Bobb wrote that, “this overall approach to estimating damages is a reasonable one and may even understate damages.”
In the Philip Morris survey, Knowledge Networks asked 276 smokers whether they would buy a light cigarette or a regular one with the same taste at the same price if the light one could be more harmful.
About 96 percent said they would buy the regular ones.
Knowledge Networks then measured survey responses and calculated the actual value of light cigarettes as 7.7 percent of what smokers paid for them.
The surveyor multiplied the difference by the number of light and low tar cigarettes Philip Morris sold for 30 years.
Byron accepted the result and added $3 billion in punitive damages.
The Supreme Court reversed his judgment in 2005, but Fifth District appellate judges reinstated it last year.
The Supreme Court has set oral argument May 19.
Philip Morris aims to overturn the entire judgment, but also argues that the survey did not produce a reliable measure of damages.
The economists in Byron’s corner possess both political and academic credentials.
Akerlof, a Georgetown University professor, has warned that global warming could make large sections of the earth uninhabitable.
He favors a carbon tax, comparing America’s behavior to entering a neighbor’s house and eating the dinner on the table.
Former Massachusetts Institute of Technology professor Richard Schmalensee also favors a carbon tax as board chairman at Resources for the Future.
Henry Aaron of the Brookings Institution serves as chair of the Social Security advisory board and favors a single payer health care system.
Income inequality expert Robert Solow, age 90, has written that, “taking a dollar from a random rich person and giving it to a random poor person would lead to a better social state.”
President Obama bestowed a Medal of Freedom on him last year.
Princeton professor Alan Krueger served Obama as assistant Treasury secretary and chair of his council of economic advisors.
Krueger recommends contingent valuation surveys, having employed one two years ago in an article on Americans without health insurance.
Not all economists endorse such surveys, which usually measure the value of outdoor projects like trails, beaches and wildlife sanctuaries.
A University of Colorado website cautions that contingent means hypothetical.
Massachusetts Institute of Technology professor Jerry Hausman branded such surveys as hopeless in an article for the American Economic Association in 2012.
He wrote that they overstate values and fail to recognize the difference between what people are willing to pay and what they are willing to accept.
“What people say is different from what they do,” Hausman wrote.
He wrote that surveys suffer from respondents “inventing their answers on the fly,” so that resulting data is useless. He also wrote that large and persistent disparities commonly arise in answers.
“[T]hose being interviewed often seek to please the interviewer,” he wrote.
“Some bad ideas in economics and econometrics maintain a surprising vitality.”