commission-on-wellbeing-and-policy-report---march-2014-pdf

CHAPTER 2
are missing something important by highlighting that different measures are moving
in different ways. For example, Grimes, Oxley, and Tarrant (2012) 57 show that life
satisfaction adds significant explanatory power to a model of migration flows across
the OECD over and above GDP per capita, indicating that life satisfaction captures
aspects relevant to people’s actual choices other than traditional economic measures.
Better understand the drivers of subjective wellbeing
Subjective-wellbeing measures can be used to test empirically which objective
conditions are significant components of individual wellbeing. With appropriate
analysis this may allow the estimation of the relative importance of different factors
and how this impact may differ across different population groups. Subjective
wellbeing provides analysts with valuable information about what matters and what
is most important to individuals beyond the relatively limited inferences that can be
drawn from market prices. 58
In general, the evidence from subjective wellbeing supports intuitive views as to
what matters to people – health, income, not being unemployed, and social contact
are all important. 59 However, it can also provide some more surprising results,
such as that procedural issues have an intrinsic contribution to wellbeing, not
just an instrumental one. For example, both feelings of confidence in government
and public institutions, 60 and the level of direct democratic engagement through
referenda and other means 61 are associated with high levels of subjective wellbeing.
Input for other analyses, particularly cost-benefit analysis
Analysis of subjective-wellbeing measures can shed light on some of the
fundamental assumptions about human behaviour. For example, the axiom that
efficiently functioning markets maximise wellbeing depends crucially on the extent
to which people are able to make choices that will in effect enhance their wellbeing.
Subjective-wellbeing measures can take the debate beyond a simple theoretical
argument about whether there are externalities present or whether people are
fully rational, and enable analysis of what sorts of errors people actually make in
forecasting their future affective states, and how significant errors in judgements
of this sort are compared to other factors. This type of information is crucial to
policy making, since a lot of public policy is focused on altering the behaviour of
individuals. For example, retirement income policy is largely justified on the basis
that individuals are not good judges of their own future wellbeing, or that their
future wellbeing is given relatively little weight in decision making compared to
current wellbeing.
57. Grimes et al. (2012)
58. See Chapter 1
59. Dolan et al. (2008)
60. Helliwell (2008)
61. Frey and Stutzer (2000)
62. Clark and Oswald (2002), Dolan and
Metcalfe (2008)
63. Dolan and Metcalfe (2008)
One particularly important policy use of measures of subjective wellbeing is in
the treatment of non-monetary outcomes in cost-benefit analysis. 62 Existing ways
of obtaining values of non-monetary outcomes for cost-benefit analysis – such
as willingness to pay or the use of shadow prices – are expensive to collect and
known to produce results that are neither always intuitively plausible, nor internally
consistent, and which can be heavily affected by strategic decisions on the part of
those surveyed. 63 Measures of subjective wellbeing are cheaper to collect, produce
relatively consistent results, and are mostly immune to strategic manipulation by
respondents. For example, by looking at the marginal impact on subjective wellbeing
of say, an improvement in health status as opposed to moving from employment to
unemployment, it is possible to estimate the effects of a given output on wellbeing.
Combining this information with figures for the cost of purchasing each output, it is
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