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Behavioral Economics, Happiness Surveys, and Public Policy1

Published online by Cambridge University Press:  06 May 2016

Matthew D. Adler
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Abstract

Two important developments in recent policy analysis are behavioral economics and subjective-well-being (SWB) surveys. What is the connection between them? Some have suggested that behavioral economics strengthens the case for SWB surveys as a central policy tool, e.g., in the form of SWB-based cost-benefit analysis. This article reaches a different conclusion. Behavioral economics shows that individuals in their day-to-day, “System 1” behavior are not expected utility (EU-) rational – that they often fail to comply with the norms of rationality set forth by EU theory. Consider now that the standard preference-based view of individual well-being looks to individuals’ rational preferences. If the findings of behavioral economics are correct, an individual’s answer to a question such as “How satisfied are you with your life?” is not going to tell us much about her rational (EU-compliant) preferences. Behavioral economics, by highlighting widespread failures of EU rationality, might actually argue for an objective-good (non-preference-based) view of well-being. However (except in the limiting case of an objective-good view positing a single mentalistic good, happiness), SWB surveys will not be strong evidence of well-being in the objective-good sense. In short, SWB surveys are no “magic cure” for the genuine difficulties in inferring rational preferences and measuring well-being underscored by behavioral economics.

Keywords

D03D61D69behavioralbehavioral economicsexpected utilityhappinessrationalitysubjective well-beingtheory
Type
Articles
Information
Journal of Benefit-Cost Analysis , Volume 7 , Issue 1: Special Issue on [Ir]rationality, Happiness, and Benefit-Cost Analysis , Spring 2016 , pp. 196 - 219
Copyright
© Society for Benefit-Cost Analysis 2016 

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