Current Trends in Welfare Measurement

Abstract

The rise of subjective measures of well-being represents at least two important trends in the measurement of welfare or well-being. The first trend, which has already received some attention in the literature, is a shift away from preference-satisfaction accounts of individual well-being and toward mental-state accounts. The second trend, which has gone largely unnoticed, is a shift away from the measurement-theoretic (or representational) approach to measurement and toward the psychometric approach. In this chapter, I will argue that whereas orthodox economic welfare measures are based on the measurement-theoretic approach, subjective measures are based on the psychometric approach. The difference helps explain why subjective measures are based on questionnaire data, while orthodox economic measures are based on observable choices; why proponents of subjective measures validate their measures by establishing construct validity, reliability, and so on, whereas orthodox economists tend to establish that a particular function is a utility function; why orthodox economists’ approach to welfare measurement strikes proponents of subjective measures as terribly inadequate, and vice versa; and why subjective measures are based on mental-state accounts, whereas orthodox economic measures are based on preference-satisfaction accounts of well-being. This trend constitutes a radical methodological shift, which is likely to have a significant impact on the shape of welfare economics and on the public policy it informs, and could generate novel and interesting avenues of research.

Keywords: Welfare, Measurement, Happiness

JEL Classification: B2, B4, D6