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date: 18 May 2021

Abstract and Keywords

Governments rely on certain basic metrics and tools to analyze prospective laws and policies and to monitor how well their countries are doing. In the United States, cost-benefit analysis (CBA) is the primary tool for analyzing prospective policies, especially with respect to administrative regulations. Similarly, Gross Domestic Product (GDP) is perhaps the most prominent metric for monitoring a country's progress. In recent years, one of the most important developments in social science has been the emergence of psychological research measuring subjective well-being (SWB) or ‘happiness’. This article first explains the way in which SWB is measured and how those measurements have been validated. It then discusses well-being analysis (WBA), which uses happiness data to analyze prospective policies more accurately than does CBA. Next, it covers the ways in which SWB data have been used to generate prices that can be used by traditional economic analysis. This is followed by a discussion of attempts to revise CBA to deal with the limitations stemming from the fact that it uses wealth to assess the effects of policy on quality of life. Finally, the article lays out the progress made towards creating an SWB-based alternative to GDP.

Keywords: cost-benefit analysis, economic analysis, GDP, subjective well-being, happiness, well-being analysis, policymaking, quality of life

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