Coase Lecture Examines the Behavioral Law & Economics of Happiness

Jonathan Masur

How does prison actually make someone feel? To what extent does being in prison—or having been in prison—affect someone’s well-being? The goal of criminal sentencing is for the punishment to fit the crime—not just on paper, but in terms of how the criminal actually experiences prison. Yet in order to understand how people experience prison, we need to understand what makes them happy or unhappy, Jonathan S. Masur said when he delivered this year’s Coase Lecture in Law and Economics. Without knowing how laws and policies affect individuals’ happiness, our approach to sentencing and many other legal issues could very well be wrong.

A growing body of self-reported data on subjective well-being, or happiness, has shown that most people don’t know themselves as well as they think they do. This means that when we try to answer important questions posed to the legal system, we may be doing so without a lot of relevant information, said Masur, John P. Wilson Professor of Law, David and Celia Hilliard Research Scholar, and Director of the Wachtell, Lipton, Rosen & Katz Program in Behavioral Law, Finance and Economics. The research about subjective well-being that Masur has conducted along with collaborators John Bronsteen, Loyola University Chicago, and Chris Buccafusco, Benjamin N. Cardozo School of Law, reveals that the ways in which individuals experience their own lives should inform the policies surrounding prison sentences, injury settlements, and more.  

“How much has an individual been injured in an auto accident?” Masur asked during the lecture, titled “The Behavioral Law and Economics of Happiness.” “How much punishment is five years, or ten years, or twenty years in prison? These are questions that revolve around the issue of how the individual’s life is going, and how he or she is experiencing it.”

Collecting data on subjective well-being, Masur said, can be as simple as asking people how they are feeling and at the same time gathering general information about their lives—for instance, whether they are employed, whether they are married, or how much income they earn each year. Analysis of this data revealed that most people can’t predict what will make them happy or unhappy, and that they adapt to changes in their lives, both positive and negative, more quickly than they might expect.

“Let’s say something comes along that makes us a lot happier, like we get a raise,” Masur said. “Initially, a nice bump to our happiness, but pretty quickly that advantage dissipates, and we’re back nearly to where we were. Or, something comes along that makes us less happy—an injury, an illness, etc. Initially, that causes some harm to someone’s happiness, but eventually most people will return close to where they were.”

Surveys of people who have spent time in prison reflect these findings. For one, most people partially adapt to living in prison, and do so in less time than they might have anticipated. Moreover, they endure the negative effects of prison, such as sustained unemployment or strained relationships, long after they are released. These disadvantages are hard to adapt to, Masur said, and they attach after just a couple of years in prison. In other words, serving five years in prison and serving ten years in prison might have similar effects on a person’s overall well-being, so a 10-year prison sentence is not nearly twice as bad as a 5-year sentence. The information from these surveys can explain why criminal defendants choose going to trial over what might seem like a favorable plea deal, as well as why many of those released from prison end up reoffending.

“Criminals may realize that long-term sentences just aren’t that different than much shorter sentences,” Masur said. “This can help explain recidivism, to some degree. People get out of prison and their opportunities are not nearly as great as they were before—their life experience has worsened to a significant degree, and so they have much less to lose by reoffending and going back.”

People also tend to adapt to injuries. Even with serious injuries, such as the loss of a limb, they often regain 30 to 40 percent of the well-being they lost initially. In cases of automobile accidents, this means that when injured parties sue for damages, they will be more likely to accept a settlement offer once they have adapted to their injury. Insurance companies can take advantage of this knowledge, Masur said, by pushing settlement negotiations as far away from the time of the accident as possible.

“Let’s say you have an insurance company that’s a repeat player,” Masur said. “If they understand this phenomenon, they can hold off on making settlement offers to plaintiffs until later in the game, waiting for that plaintiff to adapt. On the other hand, if you have an experienced plaintiff’s attorney, the plaintiff’s attorney can try to counter this effect.”

Knowing the relationship between subjective well-being and income, and controlling for other factors, Masur said, can also allow for a more accurate calculation of the value of a statistical life. Masur referenced a 1989 Environmental Protection Agency proposal to remove asbestos pipes, which ultimately was struck down by the US Court of Appeals for the Fifth Circuit. At the time of the regulation, the EPA valued a human life at $4.5 million. Given that value of life, the court decided that the cost of removing the pipe far outweighed the benefits. But if the Fifth Circuit had determined the value of a statistical life using the information we have now about subjective well-being, they would have found that the benefits outweighed the costs by a significant margin. 

“If you think about how much those lives were worth to those people in terms of the money that they would need to compensate them for risking their lives, the regulation would have generated overall net benefits in the range of $367 million,” Masur said. “So this asbestos regulation that was struck down in the early 90s—maybe it actually should have been allowed. Maybe it was actually doing far more good than harm.”

Research on well-being can be valuable in ways both great and small, Masur added.

“The new literature on happiness can in fact be useful as a way of engaging in personal self-help—as a method of trying to find ways of improving your own lives,” he said. “But it can also be a lot more than that. It can be used as a tool to evaluate and design policy on a nationwide scale.”