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Measuring individual well-being: A multidimensional index integrating subjective well-being and preferences
Lin Yang
June 2017
Paper No' CASE/202:
Full Paper (pdf)

JEL Classification: D63; I31

Tags: life satisfaction; multidimensional well-being; preferences; welfare economics

Policymakers have begun looking for measures to assess the well-being of their citizens beyond GDP per capita and disposable income levels. However, the multidimensional and subjective nature of human well-being makes defining such a measure challenging - when dealing with multiple dimensions of well-being, how can we reconcile the need for a consistent measure across individuals with the differences those individuals might place on the relative value of different dimensions (income versus health, for example)? This paper introduces the "preference index approach", a multidimensional measure based on the "equivalence approach" in social choice theory, assessing well-being in a way that reflects such interpersonal differences in preferences whilst retaining comparability among individuals. The framework is empirically illustrated with subjective well-being data from the British Household Panel Survey, using longitudinal life satisfaction regression to estimate different preference types between well-being dimensions. The empirical illustration estimates preferences of individuals by age group and education level, and finds an unexpected weaker preference for the health dimension within older groups. Across all groups, health is strongly prioritised over income. When preference heterogeneities are taken into account, the picture of well-being looks quite different than that painted by income, subjective well-being or standard multidimensional measures. The "preference index" proposal challenges the popular assumption of a readily available cardinal well-being measure specified identically across individuals, and the common practice in composite indices of using population averages to seek an assessment. As such, the framework and empirical application of this preference-sensitive index of multidimensional well-being are new contributions.