Law & Economics Working Papers
Recent empirical work demonstrates that people's self-reported happiness is surprisingly resilient to many large changes in life conditions; apparently significant adverse events and conditions often inflict little or no hedonic damage. People with disabilities—such as those on dialysis, with lost limbs, or with colostomies—appear to show the same level of happiness or life-satisfaction as people without disabilities. The reason for these results is people’s power of adaptation. Adaptation has several sources, but it is often a product of attention: Most of the time, people go about their lives without attending to, or focusing on, adverse conditions, and hence those conditions inflict little hedonic harm. And if people make "hedonic judgment errors" about their own lives, they are highly likely to make such errors when assessing hedonic losses experienced by other people. These findings have important implications for the legal system, especially in the context of awards for pain, suffering, and hedonic losses. A special problem is that if people adapt to adverse changes because they cease to focus on them, the context of litigation will produce a serious distortion, because the attention of juries and judges is specifically focused on adverse changes. But there are two qualifications. First, some injuries do inflict significant hedonic losses, because people cannot help focusing on them; chronic pain, anxiety, and depression are the most obvious examples. Second, people may suffer "capability loss" without suffering hedonic loss, and the legal system should award compensation for "capability damages." These claims have broader implications for many questions of law and policy, including appropriate priority-setting for governments concerned with the welfare of their citizens. For example, increases in Gross Domestic Product are not much correlated with increases in self-reported happiness, in a way that raises serious questions about the focus on GDP; but GDP growth is closely correlated with social gains, such as increased longevity, that are not captured by self-reported happiness. The simplest conclusion is that pervasive existence of hedonic judgment errors raises the possibility that both economic and regulatory policies are misdirected.
Cass R. Sunstein, "Illusory Losses" (John M. Olin Program in Law and Economics Working Paper No. 340, 2007).