Understanding Well-being Data

Chapter 2 Knowing well-being: a history of data

Economics, value and human behaviours

As observed by the historians of the hedonimeter1, economics has trends: periods of time where ideas, approaches and aspirations for what should be possible ebb and flow. This is not unlike any discipline or, to be honest, act of human effort. Following Edgeworth’s failed dreams of a hedonimeter in the nineteenth century, economics largely lost interest in understanding the motives behind human behaviour in this way.

Instead of wanting to know how people felt about something, it was deemed sufficient to observe behaviour through consumption as a proxy for feeling. When someone buys a widescreen TV, a photo album, a frozen pizza or an avocado, the implicit assumption is that they make this purchase because it offers them satisfaction or makes them happy somehow. This presumes that people’s preferences are revealed in such choices. In fact, it was thought that everything outside of the observable was beyond the realm of economists’ study2.

So, understandably, people tend to think of economics as being about the economy, but the discipline is far more than that. Some popular economists call economics ‘the logic of life’3 while others dispute the ‘hype’ and ‘megalomania’ of some popular economists4. Crucially, economics aims to understand the value of things to different people, and how much of any resource is estimated to be needed for particular populations in different domains (aspects) of their lives. Therefore, the discipline of economics is used for insights into how investment or resources should be distributed across a population. Or, to make the policy decision between, say, saving older, smaller community libraries, or investing in new ‘super-libraries’.

Box 2.4 Positive and Normative Economics

It can be helpful to know the difference between positive and normative economics.

Positive economics attempts to explain what is happening or what has happened thus far. This might include the relationship between investment in super-libraries and how that has changed library usage. Although other changing societal factors will affect how you can measure this over time. For example, confounders will include digitisation, the rise of the audio book and of course the market forces of Amazon. A confounder confounds (or confuses) the possibilities of measuring a direct relationship, as such, economists try and ‘control for’ these effects. We shall get to this later with examples in Chaps. 7 and 8.

Normative economics aims to evaluate what should happen. This branch of economics draws heavily on philosophical or theoretical arguments to think about what is ‘fair’ and ‘just’. It is, therefore, based on value judgements. This means that the policy decision to direct limited resources towards saving older, smaller community libraries because of the social benefits in local communities are weighed up against building new, super-libraries, for example, which update technology and perhaps encourage different groups to use them.

Both positive and normative economics have roles in evaluating the kinds of policy interventions described in audit culture and throughout the book. Economics forms the foundations of what is called the HM Treasury Green Book in the UK—and of how most OECD member countries evaluate their policy decisions. While the flaws of ‘audit culture’ have been presented briefly above, it is also important that evaluation of policy decisions happens: that policy-makers are accountable and that resources are handled with care and with a view towards social justice. What is called consequentialist welfarism dictates that actions should be evaluated by their outcomes and that the outcome which matters most is welfare.

Welfare in this instance does not only refer to the welfare state, but ‘how people are doing’. So, economists have been trying to find the best ways to evaluate how a policy intervention impacts on how people are doing. Box 2.5 holds four key ideas of valuation that will help understand approaches that will appear throughout the book.

Box 2.5 Four Key Approaches to Valuation

Revealed preference was introduced by the American economist Paul Samuelson in 1938. Samuelson decided that consumers’ preferences are revealed by what they purchase. The implications of this idea are that we can look at how people purchased one thing over another and assess the circumstances in which these purchases were made. This context may consider other things they may have purchased, how much these things might have cost and the limits people may have in their income.

Even the economists don’t all believe that all preferences can be revealed in this way, by proxy. Stated preference techniques involve asking people what they would be willing to pay for something. Or, in public policy terms, sometimes this involves the hypothetical example of asking whether they would be prepared to pay more taxes to reduce hospital waiting times, for example. Because these approaches involve asking people their opinion, they are expensive to administer and, as we now know, there are doubts that what people state or declare is their preference is their actual preference.

Quality Adjusted Life Years (QALYs) is a form of economic evaluation of policy interventions that is particularly useful in health policy decisions. It involves estimating the value of quality and quantity in years of human life remaining for a patient following a particular treatment or intervention. It is often measured on a scale in terms of the person’s ability to carry out the activities of daily life, and freedom from pain and mental disturbance. This is then translated into an economic analysis of cost-effectiveness for often very different health interventions. This process makes different things commensurate for easy comparison.

In the last ten years, Well-being Valuation has increasingly appeared across domains of social policy. This takes well-being data, say life satisfaction data, to calculate the impact of something which has no market value, or for which market value is not its primary value, as is common in much of social and cultural policy. There are many years of research on the relationship between income and well-being, and, although this is not fixed, some of the estimates are considered robust. Three data points can be taken from a survey. Let’s say access to parks, life satisfaction and income. The Well-being Valuation approach works on the basis that you can not only find the relationship between parks and life satisfaction, but that you can take what you also ‘know’ about income and life satisfaction to estimate the value of this relationship in economic terms. We shall come back to this step by step in Chap. 9.

  1. Colander 2007 []
  2. i.e. Scitovsky 1976 []
  3. Harford 2008 []
  4. Chang 2014, 19 []