Measuring the Essence of the Good Life

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Measuring the Essence of the Good Life

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Bibliographic details

• Authors: DANIEL BENJAMIN, KRISTEN COOPER, ORI HEFFETZ, MILES KIMBALL
• Published: December 2, 2021

Overview

• GDP measures the total output of goods and services in an economy but has flaws when used to gauge the well-being of a nation’s residents.
• Real (inflation-adjusted) per capita GDP in the United States rose from $58,333 in the fourth quarter of 2019 to $58,454 in the second quarter of 2021, yet this rise may not reflect broader social, emotional, and human costs of the COVID-19 pandemic.
• The article argues for a complementary multi-dimensional measure of national well-being rather than replacing GDP with another one-dimensional metric.

Limitations of GDP as a Well-Being Measure

• GDP omits nonmarket aspects of well-being such as leisure time, relationships, and emotional experiences like anxiety and sense of purpose.
• Market prices used in GDP do not account for differential welfare impact of spending across households (for example, a dollar spent by a family in poverty versus a billionaire’s family).
• Data availability historically constrained broader indices; for example, the HDI’s dimensions reflect what was widely measured in 1990.

The Human Development Index (HDI)

• The HDI is described by the UNDP as “the geometric mean of normalized indices for each of the three dimensions” (a long and healthy life, being knowledgeable, and having a decent standard of living).
• The geometric mean implies that a percentage change in HDI is the equally weighted average of the percentage changes of its components.
• The HDI provides a single, simple number that summarizes country performance but is arbitrary in its choice of dimensions and weights.

Toward Less Arbitrary, Stated-Preference-Based Indices

• Aim: include many more than three dimensions of well-being and weight them based on the values of people in the country.
• Surveys can overcome data constraints by capturing dimensions in real time; HDI performance during the pandemic is unknown because the latest HDI numbers available at the time of writing are for 2019.
• Single-question happiness measures miss aspects people consider when making choices; multiple survey questions reintroduce the weighting problem.

Proposed Survey-Based Approach and Methodology

• Weights recommended are relative marginal utilities—estimated from stated preferences in specially designed surveys.
• Previous work (Benjamin, Heffetz, Kimball, and Szembrot, 2014) asked about 136 aspects of well-being intended to comprehensively reflect proposed aspects of well-being.
  • An actual index should comprise fewer aspects and avoid or adjust for conceptual overlaps.
  • The published illustration used 18 of the 136 aspects to show results.
  • The weight on the top aspect—freedom from corruption, injustice, and abuse of power—is normalized to 1.00.
• Two types of survey questions to construct personal well-being indices:
  • Ratings: respondents move a slider from 0 to 100 to indicate their level of an aspect of well-being over the past year.
  • Trade-offs: respondents choose between two options in which levels of one or more aspects are slightly higher or lower than the reported rating; national policy choice questions are an illustration.
• Construction logic: substitute reported levels from ratings for quantities and use estimated weights from trade-offs in place of prices, analogous to consumption measurement in national accounts.

Methodological Advances and Remaining Challenges

• Calibration questions address large differences in how people use rating scales (e.g., some use 0–100, others 50–100); calibration ratings can correct for some scale-use differences across individuals and potentially across time.
• Heterogeneity in trade-offs: demographic characteristics (such as age and education) and overall well-being likely affect trade-offs; systematic tendencies can be used to create reasonable weights without estimating each individual’s weights separately.
• Inequality adjustment: the index should account for inequality in personal well-being, not merely aggregate personal indices; societal aversion to well-being inequality requires employing a level of inequality aversion to transform personal indices before totaling to a national index.

Key Findings from the Stated-Preference Results

• Many top-weighted aspects are capabilities in Sen’s sense and help make a good life possible.
• Several important aspects of well-being with weights at least 75 percent of the top aspect are missing from many existing measures such as the HDI.
• Some widely collected aspects have relatively low weights compared with top aspects:
  • “People not feeling anxious” is weighted less than a quarter of the top aspect.
  • For HDI-relevant aspects: “people’s health” and “people’s financial security” have almost three-quarters the weight of the top aspect.
  • Knowledge, skills, and access to information; understanding the world; long lives; and average income have weights no higher than 54 percent of the top aspect.

Policy Implications and Recommendations

• Policymakers and development practitioners should carefully consider which metrics they monitor and how those metrics are weighted: “What gets measured, gets treasured” and “What we give weight to, we value.”
• A theoretically grounded national well-being index should:
  • Include multiple components beyond GDP and HDI dimensions.
  • Use survey-based stated preferences to derive weights that reflect population values and marginal utilities.
  • Correct for scale-use differences via calibration questions.
  • Incorporate demographic heterogeneity in trade-offs to generate feasible weights.
  • Adjust for inequality in personal well-being with an explicit inequality aversion transformation before aggregation.

Source: Measuring the Essence of the Good Life, F&D Magazine, December 2021.

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