Does happiness adapt? A longitudinal study of disability with implications for economists and judges

Abstract

Economists ignore the concept of hedonic adaptation (the possibility
that people automatically bounce back from utility shocks). So also do judges.
We show in longitudinal data that people who become disabled go on to exhibit
marked recovery in mental wellbeing. Nevertheless, adaptation to severe
disability is partial not complete. Using happiness equations, the paper
develops a method to try to measure the exact strength of this recovery in
wellbeing. Finally, in considering how judges might use such equations to
calculate legal damages, the paper calculates the implied required path of
monetary compensation. Its key feature is that compensation payments should
be set to decline through the years.