THE LAWS OF HAPPINESS
FIVE CLAIMS
In this chapter, I attempt to defend five claims.
1. In advance, people greatly overestimate the harmful effects of many bad events on their happiness, largely because they do not anticipate the remarkable human capacity to adapt. This capacity stems in part from a distinctive feature of attention: after a short period, people who have suffered many losses do not focus, constantly or much, on those losses. Some losses turn out to be illusory or at least exaggerated, in the sense that they inflict far less damage than people anticipate.
2. It is important for the legal system to distinguish between harms that impose enduring losses, such as chronic pain and mental illness, and harms that do not, such as losses of fingers and toes. The distinction between enduring and illusory losses—for which ringing in the ears and loss of toes are illustrative cases, respectively—has many implications for economic and regulatory policy.
3. Both juries and judges are likely to make mistaken judgments, in a way that produces both inflated and insufficient damage awards. One reason for these errors is that in evaluating losses, observers neglect the capacity to adapt. Another reason is that the legal system asks juries and judges to focus on, and thus to attend to, losses to which plaintiffs might well devote little attention in their ordinary lives. In short, the legal system almost certainly produces focusing illusions in tort cases.
4. Without acknowledging that it is doing so, the legal system appears to be awarding “capability damages” under the rubric of damages for “pain and suffering.” Juries award damages for the loss of capabilities, even in contexts in which people are not suffering a loss in the enjoyment of their lives.
5. An understanding of our capacity to err, in thinking about what causes happiness and unhappiness, raises the serious possibility that many policies, both fiscal and regulatory, are poorly directed. Governments might be expending resources in the false hope that the expenditures will improve well-being.
Now for the details.
DOLLARS AND WELFARE
Suppose that Jones has lost the use of two toes, or that Smith has become blind, or that Wilson has been paralyzed from the waist down, or that Holmes has developed post-traumatic anxiety, or that Johnson has been subjected to racial harassment, or that Benson has suffered a loss of cognitive capacity, or that Dickerson has become impotent. The legal system allows people to recover for “pain and suffering.” The adverse effects captured in the idea of pain and suffering are undoubtedly real, and the legal system should attempt to deter them and to provide compensation. Loss of well-being is often the most serious harm that people face—far more serious than strictly economic losses. But the resulting damage awards are notoriously variable, and it is not clear that they are in any sense rational or coherent. An initial problem is the extreme difficulty of translating pain and suffering into monetary equivalents.
In many states, people are also permitted to recover “hedonic damages,” designed to capture people’s loss of enjoyment of their lives. The line between pain and suffering on the one hand and hedonic damages on the other can be obscure; events that cause suffering also impose hedonic losses. The basic distinction is that hedonic damages cover neither affirmative distress nor suffering but forgone gains, as when people are unable to engage in valued activities such as sports. People might seek hedonic damages for the loss of a dog; for the inability to have sexual relations; for the loss of a limb; for the loss of use of an elbow; for depression and self-consciousness as a result of amputation of an arm; or for becoming bedridden and thus requiring constant care. Here, too, it is extremely difficult to translate the relevant losses into monetary equivalents.
Even before the translation occurs, juries and judges investigating hedonic damages and pain and suffering are asked, in a sense, to serve as “hedometers,” assessing the adverse welfare effects associated with one loss or another. For purposes of analysis, I shall refer to pain and suffering and also to hedonic damages as “hedonic losses,” while recognizing that the principles behind them are distinct. The idea of hedonic losses is meant to capture the utility losses or (subjective) welfare losses produced by some bad event. I use the word hedonic to underline the connection with the emerging research that attempts to measure how people are enjoying their lives; the word utility, understood in the standard way, would work equally well.
As the law now stands, the central goal is one of appropriate compensation or “making whole”—with the understanding that the compensatory award is supposed to restore plaintiffs to the hedonic state, or the level of well-being, that they would have enjoyed had the injury not occurred. Under appropriate assumptions, the award of compensation, properly calculated, will also create the right deterrent signal, so that accurate awards will promote social welfare as well. If those who are harmed seek and receive damages, the goal of compensation and the goal of deterrence should march hand in hand. As we shall see, however, the two goals may diverge—for example, as when a monetary award for serious pain does little or nothing to make the plaintiff “whole” but does deter the kinds of acts that create serious pain or chronic headaches. In such cases, an award that is hard to defend in compensatory terms might nonetheless be justified as a means of promoting the right level of deterrence.
BAD EVENTS AND WELL-BEING
Human beings are unexpectedly resilient. As a result, many apparently significant injuries do not inflict substantial long-term hedonic harms.1 Perhaps above all, it is important to distinguish between those conditions that impose large and persistent losses and those that, because of human resilience, bring about only transitional, short-term, or modest losses.
For purposes of law and policy, a key point is that people are often unable to anticipate the effects of bad events on how much they enjoy their lives, and their inability on this count produces forecasting errors. A central problem here is adaptation neglect: people neglect the extent to which they will be able to adapt to adverse changes and conditions. When we adapt, it is usually not because of conscious efforts to do so; we are speaking of a general feature of human beings, not of successful efforts to embrace some form of Stoicism. Because of our power to adapt, we are not nearly as badly off, in terms of how we feel from day to day, as we expect.
It is reasonable to ask how enjoyment, or hedonic effect, is measured. In most of the relevant research, people use a scale of, say, 0 to 8 to answer questions about how happy they are or how satisfied they are with their lives. Skeptics might wonder whether answers to such questions tell us anything at all. As a matter of fact, people’s answers do turn out to be associated with independent tests of hedonic state, including frequent smiling, smiling with the eyes, quality of sleep, happiness ratings by friends, self-reported health, frequent expressions of positive emotions, and being sociable and outgoing.2 To date, no empirical work has falsified or even seriously undermined the suggestion that people’s reports of global happiness reflect their actual happiness, understood as subjective mental states.
Skeptics might persist at this point, suggesting that what matters is not what people say about their global life satisfaction but, instead, how people are actually feeling from day to day or from moment to moment. And, in fact, efforts have been made to assess people’s subjective well-being in this way.3 We should not be surprised to find that in some areas, people’s answers to global questions will be different from aggregations of moments. Asked about how their lives are going, divorced or unmarried people might give less than positive answers, focusing on the fact that they are unmarried; but perhaps unmarried people experience more, and not less, moment-by-moment happiness. I will return to this possibility below.
It would also be sensible for skeptics to worry that whatever the measure, people who suffer from adverse conditions might be engaging in “scale recalibration” to reflect those conditions. It is possible that colostomy patients would rank themselves high, on a bounded scale, on the grounds that they are pretty happy, considering their condition; but perhaps they would rank themselves much lower if they were comparing themselves with healthy people. If so, the surprisingly high rankings of those with adverse conditions suggest not high levels of subjective well-being but a sense that things are going well enough, all things considered. We do not yet know for sure, but this reasonable conjecture appears to be wrong. A number of efforts have been made to test for scale recalibration, and, thus far, the verdict is clear: there is no strong evidence of recalibration, and considerable evidence to the contrary.4 I shall be speaking here mainly of findings about global life satisfaction, because these are the most numerous, but on occasion I will refer to moment-by-moment measures as well.
PEOPLE’S UNEXPECTED POWER TO ADAPT
Let us begin with the limited hedonic effects of many positive changes. Lottery winners are not happier a year later than other people are.5 Marriage is often thought to be associated with increased happiness, but after a few years, married people are no happier than they were before.6 Apparently marriage produces a significant hedonic boost, but it is short lived, and people return fairly quickly to their premarriage state. Increases in salary have a similar feature; a 20 percent increase is highly welcome, but after a short period, people do not show a significant long-term change in self-reported happiness or life satisfaction.
With respect to many negative changes, including those that concern the legal system, the hedonic effects are often surprisingly small. It is remarkable but true that paraplegics are only modestly less happy than other people.7Young people who have lost a limb as a result of cancer show no less happiness than similarly situated young people who have not had cancer.8 Moderately disabled people typically recover to their predisability level of happiness after two years.9 Kidney dialysis patients do not show lower levels of happiness than healthy people.10 Colostomy patients report levels of happiness that are about the same as those of people who have not undergone a colostomy.11 Intriguingly, men and women with a colostomy greatly exaggerate their actual level of happiness before they had the procedure, while those with reversed colostomies—enabling them to have normal bowel movements again—report that before the reversal, they were far less happy than they actually were.12 I will return to these findings below.
From this evidence, it is fair to conclude that healthy people systematically overestimate the adverse effects of many physical problems on their subjective well-being. Those who face such problems experience unexpectedly little in the way of hedonic loss.13 As I have noted, it is possible to question the relevant findings; social scientists do not yet have hedometers. But from the existing research, the basic conclusions follow whether we rely on global measures of happiness or life satisfaction, or on moment-by-moment measures of mood and happiness, which might seem to be even more reliable.14
In a less dramatic vein, assistant professors greatly overstate the effect on their subjective happiness of not being granted tenure.15 They expect that this failure to gain job security will affect their happiness for many years—and, in part for that reason, they greatly want to be tenured. But after a few years, those who were denied tenure say they are no less happy than their tenured colleagues.
Many voters believe that the outcome of an election will greatly affect their happiness a month after the election is held. Surely they will be less happy, and maybe even miserable, if their preferred candidate loses. But in that month, supporters of losing and winning candidates are as happy as they were before they went to the polls.16 People have been found to overestimate the welfare effects of personal insults, the outcomes of sports events, and romantic breakups. In all of these circumstances, the adverse effects, while real and for a time severe, are surprisingly modest and short term.17
ENDURING VERSUS LLLUSORY LOSSES (OR LOUD, UNPLEASANT NOISES VERSUS FEWER TOES)
None of these points is meant to deny the fact that some positive events and conditions create large and enduring gains, while some negative events and conditions give rise to serious and persistent losses. Various drugs, such as the medication Prozac, apparently create long-term boosts in subjective well-being. It is easy to imagine changes in the allocation of time—from, say, commuting and work to socializing, vacations, and leisure—that would produce enduring benefits. It is wrong to say that people’s resilience, and their capacity for adaptation, insure that social changes and interventions are powerless to affect happiness or life satisfaction.
On the negative side, consider the instructive (and, in a sense, defining) example of loud, unpleasant noises, which people dislike intensely, and which they do not dislike less as time passes.18 With respect to highway noise, people show approximately the same level of irritation over a period of more than a year. As time passes, they become more pessimistic, not less so, about their ability to adjust to the noise.19 Nor do the physiological effects of noise diminish in children over a significant period of time,20 while a study of college students found greater levels of annoyance at dormitory noise at the end of the academic year than at the beginning.21 We should conclude that a loud ringing in the ears will impose very serious and quite long-term hedonic losses.
Many adverse conditions belong in the same category as noise. Just as people overestimate the hedonic harm of many physical losses, such as kidney failure (leading to dialysis) and colostomy, so do they underestimate the effects of depression and chronic pain.22 Leading sources of unhappiness include mental illness, such as anxiety and obsessive-compulsive disorder; subjectively reported poor health (above all persistent pain); unemployment, which can have truly terrible adverse effects;23 and separation from a spouse.24 Some research suggests that while the process of divorce is distressing, it is not as bad as separation. Notably, once the marriage has ended legally, most people adjust fairly quickly and return to their predivorce state of contentment.25
More speculatively, we might suggest that some medical conditions produce significant and enduring losses to the extent that people have to keep anticipating medical results and must consider, with some frequency, whether they are getting better or worse. Certain cancers, in which significant periods of time are spent expecting and receiving results, might well fall in the same category as loud noise. Similarly, the process of adaptation might be slowed, and focusing on painful thoughts might increase, if people are worrying about whether a serious medical condition can be improved or reversed. Severe facial disfigurement might produce enduring hedonic losses because of the social consequences of having a disfigured face.
It is therefore important to distinguish among four phenomena: (1) gains that are significant and enduring, such as those brought about by pain relief; (2) gains that are largely illusory, such as those produced by an increase in salary; (3) losses that are significant and enduring, such as those caused by pain, depression, and anxiety; and (4) losses that turn out to be low or even illusory (at least in the long term), such as those produced by losing a limb or by a colostomy. For purposes of the legal questions on which I am focusing here, the latter two phenomena are the most important.
FAILURES OF FORECASTING
From these findings, we can draw two general conclusions. The first is that many apparently serious losses inflict relatively little in the way of long-term hedonic harm. The second is that people do not anticipate this fact; they expect far more harm than they actually experience. A key reason is that people underestimate the power of psychological mechanisms that immunize them from the degree of hedonic loss that they expect to face in the event that things go wrong. It is important to try to understand the sources of the resulting errors.
In many cases, people are subject to “immune neglect”: they do not see the power of their internal psychological immune system, which greatly diminishes the detrimental effects of apparently significant changes. A related problem is that people demonstrate a kind of “impact bias,”26 in the form of a tendency to exaggerate the effect of potential future events on their emotional states. The exaggerations are sometimes described as a consequence of “durability bias,”27 understood as a propensity to overestimate how long an undesirable effect will leave an emotional imprint. According to one overview: “The conclusion from this body of research is that people are systematically wrong in their expectations about the life circumstances that will increase or decrease their happiness, which in turn implies that life choices that people make in their pursuit of happiness are also likely to be wrong.”28
The implication for the legal system is clear. If people misjudge the effects of adverse events in their own lives, there is every reason to assume that juries (and judges) will make similar mistakes in assessing the effects of those events on plaintiffs—especially, but not only, when they are projecting future losses. As we shall see, the same point applies to policy makers, including regulators.
ADAPTATION, ATTENTION, AND FOCUSING ILLUSIONS
Why do bad events often have relatively little effect on people’s subjective well-being? The first mechanism is adaptation, stemming from people’s diminished sensitivity to changes over time. What once seemed like a large hedonic boost or a serious hedonic loss often becomes part of life’s furniture. People do not anticipate this fact—hence, adaptation neglect.
A second mechanism involves attention. When apparently major losses inflict surprisingly little hedonic harm, it is often because people do not focus much on those losses after a period of transition. There is some evidence that adaptation is the dominant explanation for people’s mistaken forecasts with respect to the effects of health conditions. In particular, alerting people to the possibility of adaptation reduces hedonic forecasting errors, whereas efforts that involve attention have no such effect.29
The term hedonic adaptation refers to the diminishing intensity of people’s emotional reactions to adverse events, which leads them to lose less than they had expected.30 As I have suggested, those who have been denied tenure, or have lost the use of a limb, or have had a colonoscopy, will react intensely at first, but after a year, their affective response will diminish greatly. When moderately disabled people exhibit little or no hedonic loss, adaptation, thus understood, is the key reason.
But attention is also important.31 When people lose the use of an arm, they do not think, most of the time, about the fact that one of their arms does not work. Instead, they focus on the central features of their everyday lives: jobs, meals, their relationships, the book they are reading, or the television show they are watching. To the extent that significant losses do not cause hedonic damages, it is frequently because people’s attention is not usually focused on those losses. Daniel Kahneman describes the problem with a wonderful maxim: “Nothing in life matters quite as much as you think it does while you are thinking about it.”32 A failure to focus on what has been lost helps to explain the absence of substantial hedonic effects from apparently great losses.
Focusing illusions help to account for people’s surprise at the absence of such effects. Suppose that you are asked how much your happiness would be affected if you lost the use of a finger or if a leg injury prevented you from running. You might well say that the effect would be horrible—even though it probably would not be. The reason it probably would not be is that most of the time, few people are much affected by whether all of their fingers work or whether they can run. People are surprised by this because they focus specifically on the loss and thus conclude that it would have substantial effects, neglecting to see that those who have experienced the loss do not, most of the time, focus on it.
For hedonic forecasting, the general point is that when asked to focus on a particular aspect of life or a particular element of well-being, people are likely to make serious blunders, simply because in life, we usually do not focus on any particular aspect or any particular ingredient.
Here is a simple demonstration of a focusing illusion. Many Americans appear to believe that they would be happier if they lived in California.33 This belief is shared both by people who live there and by people who do not. But, in fact, those who live in California are not happier than those who live elsewhere. Focusing on California weather in particular, both Californians and Ohioans believe that those in California are happier even though weather is not an important determinant of most people’s happiness. When “primed” to think about weather, or any other factor that is a small ingredient in most people’s subjective well-being, focusing illusions lead people to give excessive attention to that factor.
These points, and an understanding of attention in particular, help to explain why some conditions do produce serious or enduring losses. Noise is the exemplar here. Loud and irritating noises create such losses because it is hard to disregard them. Similarly, conditions that impose enduring losses command attention; people necessarily focus on them. It is hard, for example, not to attend to chronic pain. When people are initially separated from their spouses, they are focused, much of the time, on that fact. A few years afterward, divorce becomes a background fact, not a source of constant attention. Parents whose children are suffering or needing constant attention will experience serious hedonic losses. It is hard not to attend to the needs or distress of one’s children, and such distress can serve, for parents, as exceedingly loud noise (with remarkable amplifiers).
Other puzzles in the hedonic literature can be similarly understood. Marriage produces a short-term burst in life satisfaction because those who are recently married are thinking, much of the time, about their recent nuptials. But after a few years, marriage ceases to create such a hedonic boost—even if the union is entirely happy.
We are now in a position to understand one of the most counterintuitive findings in the hedonic literature. The life satisfaction of many disabled people is not substantially lower than that of able-bodied people, and for some forms of disabilities, life satisfaction is essentially the same. Yet many disabled people believe that they were significantly happier before they were disabled, and there is clear evidence that they would pay a great deal to return to their predisability state. If the analysis here is correct, disabled people may themselves be subject to, or made subject to, a focusing illusion, when they are asked how their lives were (would be) different when they were (if they were) not disabled, or how much they would pay not to be disabled in terms of money or remaining years of life.
We do not have enough evidence to know if this claim is correct. But if it seems preposterous, consider the following question: Would you be happier if the weather where you live were automatically converted to the weather of San Diego? You might well say yes. But you would probably be wrong.
JURIES, ADAPTATION, AND ATTENTION
For the legal system, there is a concrete implication. Juries and judges are likely to make hedonic judgment errors, often exaggerating the hedonic effects of losses. The first problem is adaptation neglect. The second problem is that when asked to award damages for a certain loss, the attention of the jury (and the judge) is fixed specifically on the loss in question. It is as if juries were asked, “Would you be happier in California?” Focused keenly on a particular injury, juries are unlikely to see that, most of the time, the plaintiff may not be much focused on the particular injury. The very circumstances of a trial invite adaptation neglect and create the focusing illusion.34 In the legal system, juries and judges are required to contemplate the importance of the things that they are thinking about intensely.
Suppose, for example, that a plaintiff has lost two fingers or an arm, and the jury is asked to monetize the loss, including the pain and suffering associated with it. Because of the power of the psychological immune system, it is not implausible to think that the loss is short term and of minimal impact. After a period of adjustment, those who lose two fingers or even an arm may be only modestly worse off, in hedonic terms, than those who suffer no such loss. In fact, they might not be worse off at all; recall that there is no discernible hedonic difference between ordinary people and those who have lost a limb as a result of cancer.35
Juries and judges are unlikely to understand or even to accept this point. In all probability, they will fall into adaptation neglect and suffer from a focusing illusion. It is reasonable to expect that in awarding damages, the legal system will be subject to a systematic bias as a result. We might reach a similar conclusion for hedonic damages. Suppose that someone has lost mobility, so that she can no longer ski or play tennis. If the question is how much that person has lost in terms of “enjoyment of life,” understood in hedonic terms, the answer may well be little or nothing.
It is both true and important that even if long-term harms are not likely, the short-term harms might be severe. People might experience a level of distress, fear, mourning, and grief for which a significant degree of compensation is justified. Large monetary awards might well be given for short periods of intense suffering or sense of loss. The point is that juries are likely to exaggerate the long-term effects and thus give excessive damage awards.
As a result of hedonic forecasting errors, it is also possible that juries are awarding small sums in cases in which the hedonic loss is likely to be high. Suppose, for example, that a plaintiff is suffering chronic back pain. The pain may be relatively low grade, but it is persistent. It is not difficult to find cases in which juries award low damages in such instances.36 For example:
• $4,000 for an accident producing headaches three to four times per week and persistent pain in the hands, knees, and shoulders;37
• $25,000 to a nineteen-year-old woman whose accident caused a painful hip deformity, as well as headaches, ringing in the ears, permanent arthritis in her hip, and backaches;38
• $47,000 for an accident causing a herniated disk in the lower spine, accompanied by permanent radiating pain and restricted movement;39 and
• $30,000 for permanent pain in the neck from a herniated cervical spinal disk and in the knee from a torn meniscus.40
In each case, the award seems far too low, because the injury was likely to be enduring.
In the abstract, low-level back pain, headaches, ringing in the ears, and pain in the neck and knee may not seem especially serious. These are familiar to many of us, unlike the loss of a limb. It is easy to imagine a jury concluding that while headaches are unpleasant, they can be part of daily life, whereas loss of a limb is devastating. But to the extent that headaches, ringing in the ears, and similar conditions are severe—and more to the point, chronic—they are not likely to improve much over time. Those who face these chronic conditions suffer massive hedonic losses, a fact that jurors are unlikely to appreciate.
CAPABILITY DAMAGES
On the basis of the discussion thus far, awards for pain and suffering, and for hedonic damages, are often inflated from the hedonic point of view. But does this mean that they are inflated from the correct point of view? The very ideas of “pain and suffering” and “hedonic damages” suggest attention to subjective mental states; the law’s official theory speaks in explicitly hedonic terms. But it is reasonable to think that subjective mental states are not all that matter and that the legal system is attentive to this fact.
Let us shift gears from a purely Benthamite perspective, focused only on subjective mental states, to an Aristotelian one, focused on what people are able to do and to be. Suppose that Jones loses the use of a leg; suppose, too, that the loss does not affect his self-reported happiness. After a difficult but short period of adjustment, Jones is as happy as he was before the loss. In other words, Jones has experienced no hedonic loss. Should the legal system therefore disregard his injury?
What Jones has lost is a capability.41 He cannot walk on his leg; he certainly is unable to run. He is unable to engage in many activities that he used to take for granted. Jones may not be in pain, and he may not be suffering hedonic damage. Might the legal system nonetheless award damages anyway? If the answer is yes, it is not justified by a hedonic loss. Instead, what is involved is the loss of a real and significant capability, even if hedonic measures are unable to identify it. Consider the fact that most people would likely be willing to pay significant amounts to avoid losing a capability, even if they could be persuaded that the loss would inflict no hedonic harm.
The claim on behalf of capability losses is based on the objective harm faced by those who lose physical or cognitive abilities. If people must receive kidney dialysis treatments several times a week, they have suffered a significant loss, whatever their hedonic state. As we have seen, people with colostomies do not report less happiness than people without colostomies, but at the same time, they say that they would shorten their lifespan by up to 15 percent if they could live without a colostomy.42 Similarly, dialysis patients report little adverse hedonic effect, but many of them say that they would willingly subtract over half their remaining years in order to have normal kidney function.43 These answers seem to suggest a concern for capabilities, not merely for hedonic states.
In invoking this evidence, I do not mean to suggest that people’s statements on such points should be taken as authoritative. Begin with the case of healthy people. If such people are horrified at the prospect of having to undergo a colostomy, and if they cannot easily bear the thought of being on a dialysis machine, they might well believe (falsely) that the relevant change would make life barely livable, or so the evidence suggests.44 Hedonic judgment errors of this kind might well be impervious to debiasing.45 It is imaginable, for example, that people would demand a great deal to lose a leg, even if they could be given a fully adequate prosthetic (perhaps better than the original) and even if they could be given reliable evidence that they would suffer no hedonic loss after a brief period of transition. People’s conclusions about what they would pay to avoid or to eliminate a loss might well reflect a hedonic judgment error. If so, policy should not be based on those conclusions. If a hedonic judgment error is at work, people are not, in fact, showing an appreciation of capability losses.
In short, I am not insisting that when people say that they want to avoid conditions that do not impose hedonic losses, they are necessarily motivated by a recognition of capability losses; a hedonic judgment error may lie behind their statements. My only contention is that when people have lost a capability, they have lost something major, even if they have suffered no hedonic loss.
For those who believe that the legal system should accept this view, two difficult questions remain. First: What kinds of capability losses should the system recognize? Second: How can capabilities be translated into monetary equivalents? At first glance, a notion of normal human functioning would seem to provide the baseline from which to measure capability loss. It would follow that if someone has lost the use of a leg or an arm, or has suffered cognitive or sexual deficits, a capability loss is involved.
Recognition of the importance of capabilities has broader implications for thinking about well-being. A person who is able to run, or who can have sexual relations, is better off than someone who lacks these capabilities, even if the difference cannot be picked up in hedonic terms. The poorly educated have less in the way of capability than the well educated, even if hedonic measures cannot identify a difference between the two groups. It is possible that people with less education do not show more negative affect, or less positive affect, during their days than people with a great deal of education do. But education, taken as such, contributes to a richer life.
In a variety of cases, supposedly hedonic damages are probably best justified as capability damages. For example, courts have awarded hedonic damages to people who have lost the ability to engage in sports.46 Hedonic damages have been awarded for the loss of the senses of taste and smell.47 Courts have also awarded significant hedonic damages for the loss of a limb, in a way that may reflect, or be defensible in terms of, a capability loss rather than a hedonic forecasting error.48 Hedonic damages have been awarded where the tort victim could no longer engage in sexual activities as a result of the injury.49
Suppose that Jones has been severely injured and suffers a serious loss in cognitive capacity. Suppose, too, that his pain and suffering have been modest and that he has suffered little or no loss in terms of subjective well-being. Should Jones receive capability damages? Under the official theory of hedonic damages, the question is whether he has suffered a diminution in his enjoyment of life. If that idea is understood in purely hedonic terms, there is a real doubt as to whether damages should be awarded. But Jones is now unable to engage in certain activities and experiences that are available only to those who function at a particular cognitive level. The loss of the capacity for those enjoyments ought to matter.
For some of the cases, John Stuart Mill’s distinction between higher and lower pleasures is clearly relevant.50 As Mill writes: “[I]t is an unquestionable fact that those who are equally acquainted with, and equally capable of appreciating and enjoying, both, do give a most marked preference to the manner of existence which employs their higher faculties . . . [N]o intelligent human being would consent to be a fool, no instructed person would be an ignoramus, no person of feeling and conscience would be selfish and base, even though they should be persuaded that the fool, the dunce, or the rascal is better satisfied with his lot than they are with theirs.”51 When hedonic damages are awarded for the loss of cognitive capacities, judges and juries might well be responding to a logic of this kind.
BROADER LESSONS
These remarks bear on much larger questions. In this section, I offer a few brief notations.
Willingness to Pay and Happiness. Many economists and economically oriented lawyers work with the criterion of willingness to pay (WTP). If people are willing to pay $50 to eliminate a 1/100,000th risk of losing a foot, it is widely believed that government should start with that number in deciding on appropriate policies. Suppose, however, that people’s WTP is a product of some kind of mistake, perhaps in the form of a focusing illusion. If so, there is a real problem. And if this is so, there are serious problems with relying on WTP, because it operates as a crude proxy for welfare effects, understood in hedonic terms. In short, hedonic forecasting errors may raise problems for standard ways of conducting cost-benefit analysis.
Suppose that people are asked, “How much would you be willing to pay to avoid a 1/100,000th chance of losing a finger?” The problem is that such questions focus the study’s subjects on a certain loss and, for that reason, create a grave risk of a focusing illusion.52
Perhaps free markets will reduce the problem. When people pay for goods, they face a budget constraint, and they are aware of the full menu of possible expenditures—far more than in the circumstances of surveys. Perhaps in their daily lives, people will not suffer serious focusing illusions when deciding how much to pay to reduce risks, because they are alert, at the relevant times, to the full range of possible expenditures. When people have experience and obtain prompt feedback, they are far less likely to err. Nonetheless, sellers of products try their hardest to generate focusing illusions in order to get people to buy their goods. A great deal of work remains to be done on this problem, which seems to unsettle many of the standard claims and views in economic analysis of policy and law.
A Note on Meaning. I have mentioned “meaning,” a concept that deserves independent analysis. If someone loses cognitive capacities, the loss is not only one of a capability; his life also becomes less meaningful. And if someone is usually in a good mood, perhaps because her life is constantly and only fun, she might think, on reflection, that her activities are superficial or even silly, and that moment-by-moment measures of her moods miss something that is exceedingly important. A global life satisfaction question might pick up this concern, but perhaps people respond to that question in hedonic terms. And even if an absence of meaning is not reflected in people’s answers to survey questions, or in subjectively felt experience, it matters nonetheless.
Whether or not this is so, we can now see an additional objection to purely hedonic measures. Those who are always in happy moods may nonetheless be missing an important ingredient of well-being. Happiness, understood in hedonic terms, does matter a great deal, but well-being includes a number of disparate goods, emphatically including meaning.
ILLUSORY LOSSES, REAL HARMS, AND PRIORITY SETTING
If people make serious hedonic judgment errors in their own lives, it is highly likely that juries and judges will make equivalent errors. In particular, the legal system may well overestimate significantly the hedonic losses associated with certain injuries. The exaggerations stem in part from a failure to appreciate people’s powers of adaptation (adaptation neglect) and also from the kind of focusing illusion shown when people think about the effects of weather. Apparently significant losses often turn out to be illusory, at least if they are understood in hedonic terms. In addition, those involved in the legal system may well underestimate certain losses, including those that produce chronic pain and depression.
Some injuries fall within the same category as unpleasant noises, to which people do not adapt and on which people cannot help but focus. Other injuries, such as the loss of toes, inflict little hedonic harm. Capability damages deserve independent analysis. Even if little or no hedonic loss is suffered, it is reasonable to conclude that people deserve to be compensated in the event that they lose some or all of their capabilities.
It should be clear that these points, and the emerging research findings, have implications for how policy makers might think about a wide range of important questions. These include the limits of willingness to pay, the value of national income growth, and appropriate priority setting for governments concerned with improving social well-being. Recent work strongly suggests that national income growth does have large and beneficial effects on happiness and well-being,53 and, indeed, that there is no point of “satiation.”54 It follows that growth should be a high priority for those who are concerned about the well-being of the population. As noted, unemployment produces severe hedonic losses, and for that reason, reductions in unemployment deserve considerable attention. (See chapter 2.) Another implication is that governments should give far higher priority than they do now to relieving chronic pain and mental illness. More generally, it would not be surprising to find that governments make significant errors in fiscal and regulatory policy. If so, efforts to correct the resulting errors would produce major gains in terms of human welfare.