The great promise of self-reported well-being is that it might be able to offer a more direct, and more accurate, measure of welfare17 than could possibly come from an account of costs and benefits (especially if that account depends on willingness to pay). Suppose that we agree, with Paul Dolan,18 that welfare consists in significant part of people’s feelings of pleasure (broadly conceived) and purpose (also broadly conceived). If so, we might be able to ask people about those two variables. How much pleasure do people get from certain activities? How much of a sense of purpose? Dolan has in fact asked such questions, with a range of illuminating results.19 We are learning a great deal about what kinds of activities are pleasurable or not, and also about what kinds of activities seem to give people a sense of meaning or purpose.
2.1 Evaluation and experience
With respect to subjective well-being, the most popular of the existing measures take two forms. First, researchers try to assess people’s “evaluative” welfare by asking questions about overall life satisfaction (or related concepts).20 With such measures, it is possible to test the effects of a range of variables such as marriage, divorce, disability, and unemployment.21Second, researchers try to assess people’s “experienced” welfare, through measures of people’s assessments of particular activities (working, commuting, being with friends, watching television).22
In fact, researchers have uncovered some systematic differences between people’s overall evaluations and their assessments of their particular experiences.23 Marital status is more closely associated with evalutive well-being than with experienced well-being, though there is conflicting evidence on this point.24 French people report significantly lower levels of satisfaction in their lives than do Americans, but the French appear to show equal or even higher levels of experienced well-being.25 Health states are more closely correlated with experienced well-being, though they also affect evaluative well-being.
There is a lively debate about the choice between the two measures.26 The current consensus appears to be that useful but different information is provided by each.27 On one view, questions about experienced welfare focus people on their existing emotional states, and thus provide valuable information about those states. By contrast, questions about evaluative welfare encourage people to think more broadly about their overall goals or aspirations. On this view, evaluative welfare “is more likely to reflect people’s longer-term outlook about their lives as a whole.”28 If this is so, then the two measures do capture different kinds of values, and both are important. In my view, an important question remains: We do not yet know whether people’s answers to questions about evaluative well-being in fact reflect their broader aspirations, or whether they are instead an effort to summarize experienced well-being, in which case the latter is the better (because more accurate) measure.
There is also an active debate about the reliability of both measures of welfare; some people are skeptical about how much we can learn from them.29 Just as with willingness to pay,30 it is important to consider issues related to the quality, reliability, and applicability of different studies.31 Making a frontal assault on the whole program, Deirdre McCloskey disparages what she calls “the 1-2-3 hedonists,” who celebrate “happyism.”32 In my view, the disparagement is a mistake, for the measures tell us a great deal.33 It is true that of “welfare” leaves a great deal of ambiguity, and if it is invoked for policy purposes, any particular account is highly likely to end up in contested normative terrain.34 As Dolan makes clear, a purely hedonic measure, focused only on pleasure and pain, would be inadequate; people’s lives should be meaningful as well as pleasant.35 But even if we adopt a measure that goes beyond pleasure to measure a sense of purpose as well, we might be capturing too little.
Mill’s objections to Bentham are worth quoting at length:36
Nor is it only the moral part of man’s nature, in the strict sense of the term – the desire of perfection, or the feeling of an approving or of an accusing conscience – that he overlooks; he but faintly recognizes, as a fact in human nature, the pursuit of any other ideal end for its own sake. The sense of honor, and personal dignity – that feeling of personal exaltation and degradation which acts independently of other people’s opinion, or even in defiance of it; the love of beauty, the passion of the artist; the love of order, of congruity, of consistency in all things, and conformity to their end; the love of power, not in the limited form of power over other human beings, but abstract power, the power of making our volitions effectual; the love of action, the thirst for movement and activity, a principle scarcely of less influence in human life than its opposite, the love of ease…. Man, that most complex being, is a very simple one in his eyes.
These points suggest the importance of having a capacious conception of welfare, one that is alert to the diverse array of goods that matter to people. Amartya Sen and Martha Nussbaum have elaborated a “capabilities approach,” which is objective rather than subjective, and which emphasizes the importance of providing people with “capabilities” that support “functionings.”37 A particular concern, stressed by both Sen and Nussbaum (and also Elster38) has to do with people’s capacity for adaptation and, in particular, the problem of adaptive preferences. Suppose that people adapt to their situations, so that even under conditions of serious disability or acute deprivation, people’s subjective well-being remains relatively high. Indeed, the well-being literature finds that many serious disabilities produce relatively small hedonic losses.39 Ought we to conclude that for those who are seriously disabled, or who suffer some form of acute deprivation, there is little or no real loss, if self-reported well-being so suggests? That would be an odd conclusion. Part of what matters is what kinds of lives people are able to live. Their subjective experience of their lives matters too, but it is not the whole picture.
Consistent with Mill’s plea and the emphasis on capabilities, a large survey by Daniel Benjamin and his coauthors tests people’s concern for a list of factors that includes not only “measures widely used by economists” (e.g., happiness and life satisfaction), but also “other items, such as goals and achievements, freedoms, engagement, morality, self-expression, relationships, and the well-being of others.”40 The central (and not especially surprising) result is that people do indeed care about those other items.41 The perhaps ironic conclusion that if measures of reported well-being neglect those items, they will end up losing information that cost-benefit measures ought to be able to capture. A significant advantage of the willingness to pay measure is that it should, in principle, take account of everything that people care about, including those things that matter for Mill’s reasons. If people value cell phones because they want to connect with their children, or if they want to save (rather than spend) money so they can give it to poor children in Africa, or if they want to spend money on a vacation because of their love of nature, their concerns, however diverse in qualitative terms, should be adequately captured by the willingness to pay criterion, however unitary.42
That is a point for cost-benefit analysis, and it suggests that that form of analysis might have advantages over some measures of happiness or subjective welfare, at least if they are insufficiently refined; but it should not be taken to mean that that form of analysis has priority over good or full measures of welfare. (Having cell phones, giving to charity, and enjoying nature also have effects on welfare, and these should be measurable in principle.) What is required are measures that are sufficiently reflective of the diverse set of goods that matter to people, but that avoid the various problems, sketched above, with cost-benefit analysis.
2.2 The largest problem
With respect to regulatory policy, the largest problem with invoking self-reported well-being is this: Even if such surveys provide a great deal of information, we cannot easily “map” any particular set of regulatory consequences onto changes in welfare.43 Self-reported well-being is a measure of well-being, not the thing itself; the numbers that emerge from coefficients on well-being, and then are translated into monetary terms, are not an exact measure of what matters. They may offer us valuable information about how much (for example) unemployment affects well-being as compared to a health shock, across a population. But they do not give us a clear indication of how the multiple impacts of (say) air pollution and automobile safety regulation affect welfare as such.
Although we are learning a great deal about what increases and what decreases welfare, most of what we have learned to date remains relatively coarse44; it frequently involves the consequences of large life events, such as marriage, divorce, and unemployment. We do not know enough about how to answer hard questions about the welfare effects of health and safety regulations.45 How much happier are people when the level of ozone in the ambient air is decreased from 70 parts per billion to 60 parts per billion? For the median person, what is the welfare effect of having to spend $50 or $100 or $300 on a particular regulatory initiative, noting that the money could have been used for other purposes? In terms of “welfare units,” how should we think about a loss of a job, or a life-year? Should we use those units, or some other kind (monetary?), in conducting analyses on the basis of studies of self-reported well-being? If we use those units, what, exactly, is the relevant scale?46
Return to the two problems with which I began. We have seen that in terms of welfare, cost-benefit analysis, at least in its current form, may not adequately handle: (1) unusually large or unusually small numbers of life-years saved47; (2) adverse unemployment effects; (3) questions about the welfare effects of small economic losses faced by large populations; (4) intense emotions associated with certain outcomes, such as parental anguish48; and (5) hedonic benefits associated with increased ease and convenience. As I have suggested, improved forms of cost-benefit analysis might be able to reduce these problems.49 But ideally, we would want to know about welfare itself. The problem is that at the current time, measures of self-reported well-being are too crude to enable us to do that.
No one should doubt that cost-benefit analysis itself presents serious challenges, sometimes described under the rubric of “the knowledge problem”; agencies have to compile a great deal of information to make sensible extrapolations.50 But to map regulatory outcomes onto self-reported well-being, the challenges are far more severe.51
It is important to emphasize that those challenges might be met over time. Subjective well-being metrics are becomingly increasingly refined, and it should be possible to control for character traits, seasonal effects, and cultural differences. In principle, we might be able to test not only for the effects of large life changes, but also for such things as having a cell phone or not, donating to charity, and experiencing different levels of pollution, as well as experiencing different health conditions. Indeed, some research is doing precisely that.52 As such refinements are undertaken, the problem of coarseness will be reduced, perhaps dramatically. But for the problems that typically concern regulatory agencies, we are not nearly there yet.
2.2.2 An example
For purposes of assessing regulation, creative efforts have been made to extrapolate relevant values from measures of self-reported well-being.53 Examining an EPA pulp and paper regulation from the late 1990s, Bronsteen et al. urge that cost-benefit analysis and reported welfare analysis point in quite different directions, and that as a proxy for welfare the latter is superior to the former. In particular, they conclude that while the regulation would be expensive in monetary terms (with EPA’s options ranging from $262 million to $1 billion in cost), that expense would have trivial effects on welfare. Under their estimate, the regulation would require affected individuals to bear several hundred dollars in annual costs.
To capture the welfare effects of that cost, they enlist a study finding that those with a threefold increase in income experience a gain in well-being units (WBUs) of 0.11, and those with a two thirds decrease in income experience a 0.11 decrease in such units.54 On the basis of this study, Bronsteen et al. find near 0 in aggregate welfare losses for a modest annual expenditure of several hundred dollars. As they put it, “the monetary costs of the regulation, which dominated the cost-benefit analysis, are nearly irrelevant here.”55 To this extent, the monetary costs that loomed so large in EPA’s analysis end up playing essentially no role in a welfare analysis.
By contrast, the unemployment effects matter a great deal in that analysis. On the basis of another study, Bronsteen et al. conclude that those who are unemployed lose 0.83 WBUs per year, and that even after finding new employment, they lose an average of 0.34 WBUs per year during the next seven years after they begin working again.56 Because the EPA regulation would result in several thousand lost jobs, it would produce a massive welfare loss. Stunningly, the estimated welfare loss, from lost jobs, is well over 400,000 times the estimated welfare loss from the total monetary cost. Bronsteen et al. also note that the average American has a life satisfaction of 7.4 on a scale of 0 to 10. To capture the welfare loss from avoided fatal cancers, they invoke that number in their welfare equation, which means that the welfare gains of mortalities averted are very high (a shorthand for their analysis: 7.4 times a significant number of life-years).57
The problem with this impressively creative exercise is that in light of the current state of the art, it involves far too much guesswork to be invoked credibly by government regulators. Some of the central numbers are both speculative and unclear, provoking a range of questions and doubts. (1) Can we really extrapolate, from one or two (or more) studies of the effects on reported well-being of massive increases or decreases in annual income, the welfare effects, across a large population, of losing several hundred dollars a year? (2) Is it credible to suppose that regulations that impose such costs, on such large populations, should be treated as having essentially no adverse effects on welfare? Would a tax of $200, on say 200 million Americans, have no such adverse effects? (3) Should the same be said of five, or ten, or fifty regulations of this kind? (4) What does it even mean to say that the average worker loss is 0.83 WBUs while unemployed? If an employed person’s experience of his life is 7.4, is an unemployed person’s 6.57? In terms of what, exactly?
At the present time, these questions do not seem to have good answers. The most sensible conclusion is that studies of reported well-being cannot be used as anything like a substitute for cost-benefit analysis, and that they should not yet play a significant role in regulatory analysis.