Chicago's Best Ideas: "Well-Being Analysis vs. Cost-Benefit Analysis" by Jonathan Masur
Cost-benefit analysis (CBA) is the primary tool used by policymakers to inform administrative decisionmaking. Yet its methodology of converting preferences (often hypothetical ones) into dollar figures, then using those dollar figures as proxies for quality of life, creates systemic errors so large as to deprive the tool of value.
These problems have been lamented by many scholars, and recent calls have gone out from world leaders and prominent economists to find an alternative analytical device that would measure quality of life more directly. Well-being analysis (WBA) could be that alternative. Relying on data from the field of hedonic psychology that tracks people’s actual experience of life— data that has consistently survived scrutiny by passing the social science tests of reliability and validity — WBA is able to provide the same policy guidance as CBA without CBA’s distortionary conversion of preferences to dollars.