objective

• “Imperial College London Inaugural Lectures should be viewed as a celebration in your career”

• I want to explain what I do– and raise some important issues for policy– in a way that is accessible to everyone here

background

• “the public gets what the public wants but I want nothing this society’s got”

• in this lecture, I will show– that our wants are sometimes a bit odd

– how to value what society’s got using ‘happiness’

main collaborators

Tess Peasgood, Economist, Sheffield

Mat White, Psychologist, Plymouth

Rob Metcalfe, Economist, Imperial

Danny Kahneman, Psychologist, Princeton

Richard Layard, Economist, LSE

Nick Powdthavee, Economist, Institute of Education

Jo Wolff, Philosopher, UCL

economics

• it’s all about scarcity and choice – we cannot do everything we would like to

because our resources are scarce – so choices have to be made about how to

allocate those resources

markets

• markets allocate resources according to our willingness to pay (WTP)– the more you are willing to pay for something, the

more valuable it is to you

• WTP then represents a strength of preference– used as a measure of how things affect our well-being

• the public gets what the public wants– and in proportion to how much they want it

non-market goods

• how should we value goods and services that are not traded in the market– e.g. changes in the environment or your health?

• this question has challenged me most– along with how to take fairness into account

• but I will ignore this in the rest of what follows

non-market valuation

• most economists (and the UK Treasury) recommend inferring or eliciting WTP as if there were a market

• revealed preferences– e.g. how much more are you WTP for a house

in a tree-lined street? • stated preferences

– e.g. what is your WTP for a tree-lined street?

health valuation

• health economists (and NICE) use quality-adjusted life years, with Q on a 0(dead) to 1(full health) scale

• trade-offs over health instead of wealth– imagine being unable to walk for the rest of your life– how many years in full health is equal to this?

• if you say 10/30, then being unable to walk = 0.33

• so, it’s still based on what we want i.e. preferences

problems with preferences

• there are four main problems with using preferences to value non-market goods– forecasting – focussing – forgetting– feelings

forecasting

• we overestimate the duration of reactions and fail to predict adaptation– e.g. we imagine that paraplegia would start

off bad and stay bad

• but there is evidence of adaptation to most of the good and bad things that life throws at us

focussing

• thinking about it means attending to it– e.g. we imagine being a ‘full-time’ paraplegic

when we will be a ‘part-time’ paraplegic

• think of the pleasure from driving your car

forgetting

• ‘experts’ cannot avoid the focusing illusion – e.g. people with paraplegia imagine having

been happier in the past• they think about thinking about having been

able to walk

feelings

• how much do you fear paraplegia?– how many years of life would you be willing to

give up in order to avoid it?

• how much do you care about birds?– how much are you WTP for it?

• WTP to save 2000 migrating birds = $80

• WTP to save 200000 migrating birds = $88

miswanting

• all of this suggests that the public gets what the public miswants– economists can no longer assume that we

want (most) what we subsequently enjoy (best)

• you can miswant all you want with your money but please don’t do it with my (tax) money

wanting and enjoying

• we don’t have to think of well-being as wants– until 100 years ago well-being was ‘enjoyment’

• Bentham’s pleasure and pain

• the more you are able to enjoy something, the more valuable it is to you

• typically interpreted by applied economists as overall ‘happiness’ or ‘life satisfaction’

some key findings

• it’s a happy life – if you are young or old– if you are healthy, wealthy (compared to

others) and a little bit wise – if you are in work (any unemployment is bad) – if you are married or cohabiting and have lots

of social contact

• having children has no effect

our research

• to value non-market goods, such the environment and health, using both ‘wanting’ and ‘enjoying’

valuing the urban environment

Landore, South Wales Hafod, South Wales 675 homes 950 homesno regeneration regeneration e.g. street lighting,

road resurfacing, house repairs

urban environment results

• Landore WTP = £750 (£250/year)

• difference in life sat across the areas = 7%– amount of income required to have the same

effect on life satisfaction = £6000

• big difference – but still not cost-beneficial– costs £17,000 per household

problems with life satisfaction

• do the ratings overcome the focusing illusion?– they remind the rich they are rich etc.

• over what time frame are the ratings?– difficult to calculate QALYs / compensations

• what might we do instead?

the day reconstruction method

• developed by Professor Kahneman and colleagues

• think of yesterday as a continuous series of scenes or episodes in a film and for each episode: – how long did it last?– what were you doing? – who were you with? – how did you feel?

selected DRM results

• who we are – low correlation with income– low correlation with being married

• and the things we do – sex is good– commuting is bad– time with the boss is bad

• time spent with children is pretty bad

beyond pleasure in the DRM

• we may value our lives and our activities for reasons beyond how pleasurable they are – we may find some things “rewarding” because

they are meaningful or help others

• we have added these to an on-line DRM study of 600 Germans

• time with the boss is not so bad– and, at last, time with our kids is not so bad

valuing states of health

• the SF-36 health measure contains different levels of e.g. pain and mental health– can be used in valuing the Q in the QALY

• it has been used in various studies:– 600 members of the UK general public asked

to imagine being in different health states– 10,000 in the British Household Panel Survey

rate life satisfaction and describe health – plus our 600 DRM Germans

health state results

• ranking of impact on 0-1 scale is as follows:1. Pain P

2. Mental health LS

3. Mental health P

4. Mental health DRM

5. Pain LS

6. Pain DRM

• different QALYs and health priorities based on whether preferences or experiences used– e.g. benefits of ‘talking therapies’ on the NHS

where does this leave us?

• crying out for more research, stupid

• normative debate (and public consultation) about how non-market goods and changes in well-being should be valued

• elicit valuations using different methods (and methodologies) to better explain the differences and to inform policy decisions

where does this leave me?

• final slide of my first inaugural six years ago:– to provide useful information for academics

and policy makers– by continuing to collaborate with economists,

psychologists, sociologists, ethicists, clinicians and policy-makers

• “some people might say my life is in a rut, but I’m quite happy living with what I got [to do]”