Does happiness adapt? A longitudinal study of disability with implications for economists and judges. University of Warwick: working paper

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