[Follow-up: here]
Arik Levinson in a NBER Working Paper No. 19329 taking an interesting look at happiness economics:
To many economists this contingent valuation (CV) approach is an anathema. Conventional economics is about revealed preferences, not surveyed preferences. Hausman (2012) writes that CV respondents are "essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis." Even CV supporters have come up with a taxonomy of biases associated with the practice. Hypothetical bias refers to the fact that respondents don't actually have to pay for the good in question and do not face tangible budget constraints. Embedding refers to the fact that respondents may answer a question about willingness to pay to clean up one river by answering with the value they place on clean water everywhere. Some responses appear strategic: environmentalists claim implausibly high WTP in the hopes of influencing policy, or zero WTP on the grounds that polluters should be responsible for cleanup costs. To some, these biases call into question the legitimacy of contingent valuation.
To me, a list of biases developed by practitioners does not call into question the legitimacy of contingent valuation. To me, that is the process of research and contingent valuation has been improved because of it. The travel cost method has progressed from zonal models to single site models to random utility models as researchers have developed a list of biases associated with each approach. Measurement error in the key variable, the travel cost, is still a concern. The travel cost method has never been called an anathema and its list of biases does not make it illegitimate. I'm sure I could tell a similar story for hedonic methods and other research areas if I were more familiar with them.
One concern with Hausman (2012) was that it would be used as a red flag to desk reject contingent valuation papers (see here and here for previous posts with other concerns). It may be happening. Hausman (2012) is the only contingent valuation paper cited in Levinson (2012). There is not even a citation to "The best-financed, highest-profile CV study to date ..." (page 3).
Here is Levinson's conclusion:
The pessimistic view was stated by Schwarz and Starck (1999) even before the recent growth of policy applications began: “What is being assessed, and how, seems too context dependent to provide reliable information about a population’s well-being, let alone information that can guide public policy.” If that seems too negative, recall that other methods of valuing public goods are not without their own biases and unaddressed issues. Contingent value responses vary wildly based on the nature of the questions asked, and hedonic regressions may be skewed if home purchasers exhibit projection bias. Although travel cost models, hedonic regressions, and contingent valuations are not without unsolved problems, they have become mainstream tools for cost-benefit analysis and other policy applications. The past 10 years have seen the introduction of happiness economics as a new tool for answering important policy questions, a tool with its own new set of hurdles and biases that must be confronted. Whether in coming years we can learn enough about those biases to make happiness a policy tool on par with the others remains to be seen, but in the meantime there's no doubt the process will be interesting.
I agree that happiness economics is interesting and a place where economists should devote their attention. But using a lazy cite to Hausman (2012) and a list of well-known contingent valuation method biases does not seem like the best way to motivate that endeavor.
