Skip to main content
×
Home
    • Aa
    • Aa

Behavioral Economics, Happiness Surveys, and Public Policy1

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.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

F. J. Anscombe  & R. J. Aumann (1963). A Definition of Subjective Probability. The Annals of Mathematical Statistics, 34, 199205.

Anthony B. Atkinson (2009). Economics as a Moral Science. Economica, 76, 791804.

Daniel J. Benjamin , Ori Heffetz , Miles S. Kimball  & Alex Rees-Jones (2012). What Do You Think Would Make You Happier? What Would You Choose? American Economic Review, 102, 20832110.

Daniel J. Benjamin , Ori Heffetz , Miles S. Kimball  & Alex Rees-Jones (2014). Can Marginal Rates of Substitution be Inferred from Happiness Data? Evidence from Residency Choices. American Economic Review, 104, 34983528.

B. Douglas Bernheim (2009). Behavioral Welfare Economics. Journal of the European Economic Association, 7, 267319.

B. Douglas Bernheim (2016). The Good, the Bad, and the Ugly: A Unified Approach to Behavioral Welfare Economics. Journal of Benefit-Cost Analysis.

B. Douglas Bernheim  & Antonio Rangel (2009). Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics. Quarterly Journal of Economics, 124, 51104.

John Beshears , James J. Choi , David Laibson  & Brigitte C. Madrian (2008). How are Preferences Revealed? Journal of Public Economics, 92, 17871794.

Raj Chetty (2015). Behavioral Economics and Public Policy: A Pragmatic Perspective. American Economic Review: Papers & Proceedings, 105, 133.

Andrew E. Clark , Paul Frijters  & Michael Shields (2008). Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles. Journal of Economic Literature, 46, 95144.

Steffano DellaVigna (2009). Psychology and Economics: Evidence from the Field. Journal of Economic Literature, 47, 315372.

Paul Dolan  & Daniel Kahneman (2008). Interpretations of Utility and their Implications for the Valuation of Health. Economic Journal, 118, 215234.

Itzhak Gilboa , Andrew Postlewaite  & David Schmeidler (2012). Rationality of Belief: Or, Why Savage’s Axioms are Neither Necessary nor Sufficient for Rationality. Synthese, 187, 1131.

James M. Joyce (2004). Bayesianism. In Alfred R. Mele  & Piers Rawling (Eds.), The Oxford Handbook of Rationality (pp. 132155). Oxford: Oxford University Press.

Daniel Kahneman , Peter, P. Wakker  & Rakesh Sarin (1997). Back to Bentham: Explorations of Experienced Utility. Quarterly Journal of Economics, 112, 375405.

Mark Machina (2014). Ambiguity Aversion with Three or More Outcomes. American Economic Review, 104, 38143840.

Brigitte C. Madrian (2014). Applying Insights from Behavioral Economics to Policy Design. Annual Review of Economics, 6, 663688.

Ricardo Perez-Truglia (2015). A Samuelsonian Validation Test for Happiness Data. Journal of Economic Psychology, 49, 7483.

Lisa A. Robinson  & James K. Hammitt (2011). Behavioral Economics and the Conduct of Cost-Benefit Analysis: Towards Principles and Standards. Journal of Benefit-Cost Analysis, 2, 151.

R. H. Strotz (1956). Myopia and Inconsistency in Dynamic Utility Maximization. Review of Economic Studies, 23, 165180.

Cass R. Sunstein (2016). Cost-Benefit Analysis: Who’s Your Daddy? Journal of Benefit-Cost Analysis.

Amos Tversky  & Daniel Kahneman (1992). Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, 5, 297323.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Benefit-Cost Analysis
  • ISSN: 2194-5888
  • EISSN: 2152-2812
  • URL: /core/journals/journal-of-benefit-cost-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 8
Total number of PDF views: 95 *
Loading metrics...

Abstract views

Total abstract views: 332 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 21st July 2017. This data will be updated every 24 hours.