This result was found in What Would You Pay for an Extra Year of Life?. But how was the 5.8% calculated?
Here is the excerpt:
What’s the Return on Investment? I know there’s a lot more involved in exercising than merely putting in hours. But to keep the analysis tractable, I want to look at the investment “now” of hours into exercise, for the payoff of more years of life “later.” We can use the standard tools of present value analysis, except the “currency” is hours, not dollars.
Let’s make some base-case assumptions.
The most important assumptions are:
A 50 year old male who doesn’t exercise can expect to live to age 80
That same male who puts in 8 hours per week of exercise can expect to live to age 88.
We will measure investment and return in terms of hours per year
We assume people value their waking hours, and sleep 8 hours a night. We don’t count the 8 hours of sleep as “return” though you of course could decide to do so.
The exercise continues every year, even after age 80
The exercise costs only the time allocated to it and provides only the expected extra years of life (i.e. no “disutility” or “utility” except the expected life extension benefit)
Everything else is constant
Given these assumptions, we can compute a “rate of return” just as we would with dollars. When we do so we find that the return on investment is 5.8%.
Here are my calculations:
I got a different value, exactly half, actually.
I’m wondering if my parameters are correct:
Hours gained: 8 years * 365 days/year * 16 hours/day = 46,720 hrs.
Hours exercised: 8 hours/week * 52 weeks/year * 38 years = 15,808 hrs.
ROI = 46,720/15,808 = 2.96. A Annualized Return = 2.96^(1/38)=1.029, so 2.9%, which is half of 5.8%.
To get AR of 5.8%, the ROI should be 1.058^38 = 8.52.
Also, here is the Present Value, using Google Sheets.
