Illusory Losses

Abstract

Recent empirical work demonstrates that healthy people make large mistakes when evaluating the welfare of those suffering from apparently serious health problems. Significant adverse conditions often inflict little or no hedonic damage—sometimes because people adapt to them, and sometimes because those who suffer many losses do not, after a time, focus on them. These findings have important implications for the legal system, especially for awards for pain, suffering, and hedonic losses, where juries are likely to overestimate the effect of injuries on happiness. There are two important qualifications. First, some injuries, such as chronic pain, do inflict significant hedonic losses because people cannot adapt and inevitably focus on them. Second, people may suffer capability loss without suffering hedonic loss, and that loss should be compensable. The legal system might be improved by civil damages guidelines to correct hedonic judgment errors by juries. Broader implications include the appropriate priorities for governments attempting to improve the welfare of their citizens.

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