Happiness Research and Cost-Benefit Analysis

Abstract A growing body of research on happiness or subjective well‐being (SWB) shows, among other things, that people adapt to many injuries more rapidly than is commonly thought, fail to predict the degree of adaptation and hence overestimate the impact of those injuries on their SWB, and, similarly, enjoy small or moderate rather than significant changes in SWB in response to significant changes in income. Some researchers believe that these findings pose a challenge to cost‐benefit analysis and argue that project evaluation decision procedures based on economic premises should be replaced with procedures that directly maximize SWB. This view turns out to be wrong or, at best, premature. Cost‐benefit analysis remains a viable decision procedure. However, some of the findings in the happiness literature can be used to generate valuations for cost‐benefit analysis where current approaches have proved inadequate.