A Happiness Approach to Cost-Benefit Analysis

Subjective well-being (SWB) surveys ask respondents to quantify their overall or momentary happiness or life-satisfaction, or pose similar questions about other aspects of respondents' mental states. A large empirical literature in economics and psychology has grown up around such surveys. Increasingly, too, scholars have advanced the normative proposal that SWB surveys be used for policymaking—for example, by using survey results to calculate monetary equivalents for nonmarket goods (to be incorporated in cost-benefit analysis), or to calculate "gross national happiness." This Article skeptically evaluates the policy role of SWB data. It is critical to distinguish between (1) using SWB surveys as evidence of preference utility versus (2) using them as evidence of experience utility.

Preference utility is a measure of the extent to which someone has realized her preferences; experience utility, a measure of the quality of someone's mental states. The two are quite different because individuals can have preferences regarding non-mental occurrences. Having drawn this distinction, the Article then argues, first, that SWB surveys are poor evidence of preference utility—given problems of preference and scale heterogeneity, as well as other difficulties. Stated-preference surveys are a much better survey format for eliciting preference utility.

Second, in considering SWB surveys as an experience-utility measure, we should recognize that "experientialism" about well-being—the view that well-being is simply a matter of good experiences—is highly controversial. More plausibly, an experience-utility measure might be seen as an indicator of one aspect of well-being. However, even constructing this "weak" experience-utility measure is not straightforward—as the Article demonstrates by discussing Daniel Kahneman's detailed proposal for such a metric.