It isn't. Being an outlaw is less about gaining EXP, because as you say it's not cost effective. Being an Outlaw is a statement saying that you don't give a shit about EXP or levels, you just want to kill people. That's why most of the people who are Outlaws are kinda scummy. Or at least getting a real good deal out of the possibility of losing a level. Of course, level 3 outlaws have very little to lose, since you can't go lower than three once you reached it. It's one of the reasons why Arms Slave isn't level 8 right now. He's been losing his levels due to being an Outlaw to fulfill contracts.