Do We Overcompensate Tort Victims?: Reading Stumbling on Happiness

Over Memorial Day weekend, I read Daniel Gilbert’s new book Stumbling on Happiness. Gilbert is a Harvard psychology professor and the book isn’t a how-to—that would be a big seller—but is instead on the “science” of happiness. In econ grad school, I learned that we maximize utility subject to constraints. It is a long, long way from that to knowing how people do that or—another step—how people actually experience happiness. Gilbert’s book is an effort at situating a great deal of serious research on happiness and is well worth reading.

To tort victims and I guess we call it hedonic adaptation. Here is what Gilbert says: “Able-bodied people are willing to pay far more to avoid becoming disabled than disabled people are willing to pay to become able-bodied again because able-bodied people underestimate how happy disabled people are (p. 153).” That is backed up by references to three studies, one of which references “hedonic adaptation” in its title.

We can see quickly where we might go with this. If able-bodied jurors can’t really understand that accident victims will adapt, they will over-compensate victims. In the extreme case of full habituation, the disabled would report identical happiness levels to the abled, and no “compensation” would be required.

It appears that these ideas have received relatively little attention in the legal academy. A quick Lexis search on “(hedonic w/2 adaptation) and (tort w/2 victim)”—I’ll show you my Boolean searches if you’ll show me yours—produced one article: Jeremy Blumenthal, Law and the Emotions: The Problems of Affective Forecasting, 80 Ind. L.J. 155 (2005). Blumenthal makes exactly the overcompensation point that we should expect given the happiness literature: “... jurors may apply default judgments that inaccurately predict the intensity and duration of that suffering, with the potential to overcompensate tort victims.”

A comparable Google Scholar search took me to 2005 work by two economists, Andrew Oswald and Nattavudh Powdthavee, on “Does Happiness Adapt? A Longitudinal Study of Disability with Implications for Economists and Judges.” That work suggests that adaptation is substantial but often incomplete. Happiness levels for the never-disabled and the always-disabled are flat lines, but those of accident victims are V-shaped: a drop in happiness followed by recovery, but often at a somewhat lower final happiness level (see figures 1-5 at pages 27 to 29 if you are following along).

But on the overcompensation question, for those given to jury studies, we should run a test. Present a hypothetical damages scenario to mock juries. We should have say 12-member juries using a supra-majority rule for awarding damages of perhaps 9-3 or better. Impanel three different types of juries: all non-disabled; all-disabled; and a seeded jury, with only one disabled member. We should be interested in understanding two issues: (1) do disabled and non-disabled juries award different damage levels?; and (2) can the presence of a disabled jury member alter what non-disabled jurors would do? That presence might be about availability—better able to imagine the life of the disabled with a disabled person present—or about actual communication (“I know it sounds weird, but it actually hasn’t been so bad, and there have been some advantages”).

This also raises something of a philosophical question about what it means to have a jury of our peers. Gilbert’s book suggests that we should think of a victim of a severe accident as having three states or, put differently, as being three different people: the pre-accident person; the wake-of-the-accident person; and the habituated person. The pre-accident person does a poor job of imagining what it would mean to become disabled. Just after the accident, prior to adjusting to the accident, the victim experiences a real loss in happiness. Better after more time passes, the victim adjusts and happiness levels rise (giving rise to the V). Which peer should sit on the jury? The former self or the future self? Or some combination of the two?

Comments

[Eric Posner]

Using this literature to determine damages is extremely tricky. Not only does it suggest that people fail to anticipate that happiness will rebound after an accident; it also suggests that people overestimate the extent to which money will increase happiness. The first factor suggests that juries overcompensate victims; the second suggests that they undercompensate them. The paraplegic may be only a little less happy than he was before he was disabled; but giving him a large (or small) award might end up having no effect on his happiness level.

[Bruce]

Interesting post. Of course, there's all sorts of other cognitive errors the jury can be counted on to make along the way. They may over- or underestimate the amount of control the plaintiff had over his or her circumstances. They may over- or underestimate the present value of future earnings (I can see that happening both ways -- maybe it balances out). It could be that the underestimating (on average) happiness effect is washed out by the noise of all the other errors the average jury makes.

[James]

A few points:

1. In this country especially, disabled people might be able to externalize some of their suffering. So for instance, if I were injured, I imagine my loved ones would make sacrifices for my happiness. Our society treats disabled people fairly well - better than most other countries, I'm told. We pay a price for this, though, one that might not be borne by tort victims but that is nonetheless real.

2. Measuring happiness isn't easy. If these measures of happiness are self-reported, there might be an element of denial or self-delusion (I apologize if this comes across as condescending, I don't mean to be). I saw an episode of Law & Order in which some young men had sex with a mentally disabled young lady (they were pretty clearly just using her, in a fairly degrading way). McCoy tried to nail their asses, but she proved to be an uncooperative witness because she wanted to believe that they loved her. She would rather have them go free than admit (to McCoy? to herself?) that what she thought was love was in fact exploitation - and that perhaps she was unlovable in a romantic sense (her father clearly loved her).

Of course, one might wonder whether self-delusional happiness is nevertheless happiness (a Matrix question: remember Reagan, who willingly re-entered the Matrix as "someone important - an actor"). If we accepted this logic, our only concern would be that disabled people aren't deluding themselves, but rather deceiving us - as a way of preserving dignity, or as a survival mechanism.

3. This might be the sort of thing that proves too much. I'd like to think that electricity, clean water, and 5-bladed razors have made us happier, but I've read that evidence suggests otherwise. This would seem to have implications for our entire economic system, not just jury awards.

From "The Futile Pursuit of Happiness," in the September 7, 2003 issue of the New York Times Magazine:

"[George] Loewenstein[, an economist at Carnegie-Mellon,] tells me that he doesn't see how anybody could study happiness and not find himself leaning left politically; the data make it all too clear that boosting the living standards of those already comfortable, such as through lower taxes, does little to improve their levels of well-being, whereas raising the living standards of the impoverished makes an enormous difference."

Loewenstein himself doesn't draw these political conclusions (oddly, given his phrasing), but many people would.

4. In any case, it's important to remember that this only applies to certain disabilities. In the NY Times Magazine article, Daniel Gilbert (a professor of psychology at Harvard) said, "If you ask, 'What would you rather have, a broken leg or a trick knee?' they'd probably say, 'Trick knee.' And yet, if your goal is to accumulate maximum happiness over your lifetime, you just made the wrong choice. A trick knee is a bad thing to have."

Finally, we have evidence that people are willing to spend quite a bit of money to overcome impotence, so apparently not everything can be adapted to.

[James]

I'm pretty dense - I suppose the Daniel Gilbert I quoted is probably the same one who wrote the book. They say that a majority of women would trade 5 IQ points for 5 fewer pounds - I would take that trade in reverse about 20 times so that I could make these connections the first time around.

[JackD]

The last effort to establish hedonic damages went right down the toilet where it belonged. Efforts to attempt scientific quantification of general damages in personal injury cases will no doubt continue in the academy. Fortunately, the academy will not be called upon to do justice. That will continue to fall to juries.

[anon]

Prof. Picker --

Can you offer more of an explanation as to why we should use subjective measures of happiness as a basis for calculating damages? Perhaps this is an obvious point, but it seems the happiness argument ignores significant justifications for damages (deterrence, in particular). Also, the happiness literature (there is a decent amount out there - google, eg, does living in california make people happier) suggests that people who appear to our eyes to be handicapped report they are happy - but often (only?) because they are not focused on their handicap. If you asked an injured party, for instance, whether, despite their overall life satisfaction, they would view a higher compensatory damage award as justified because it will help family members who must now "deal" (for lack of a better term) with their loved one's handicap?

[James]

In partial response to anon: Sure, we care about deterrence, but only insofar as it protects our happiness. If all tort victims were just as happy after being injured, why should we deter tortious behavior at all (ignoring lethal injuries)?

[anon]

I guess I feel like lethal injuries are a pretty big caveat. we might also care because damages flow not just directly to an injured party, but also indirectly to those who must care for them. I don't think the data Picker cites considers the subjective happiness of anyone other than victims themselves.

[Randy Picker]

Thanks for the comments.

Let me start with anon’s first comment about deterrence. I think that James’s response was right: if we take this literature seriously, we shouldn’t want someone to spend $10,000 to prevent an “accident” that cause no harm, where harm is measured by reported happiness levels. Deterrence isn’t an end in itself but just a means to avoiding accidents that we don’t want. On the family members—raised by James and anon—yes, that is a key issue. We should want to know what happiness levels they report. We do give tort awards for loss of consortium and other family-related harms. If happiness levels don’t rebound, those awards are appropriate, but if they do, then we are back to the overcompensation point.

On the fatality caveat, we can’t compensate the dead person directly, so the family effects are the ones that matter, and again, the question is before and after happiness levels. On that that, Gilbert’s book generally suggests that most of us overestimate how much we will experience loss if a loved one dies. I sit here as an overestimator: emotionally, I don’t get it, but that is why it makes sense for Gilbert and others to study this, to actually try to measure the before and afters.

On JackD’s post about the relative worth of the academy and juries: this is why I proposed the jury study using abled and disabled jurors and a mix. We should find out how different sorts of juries—not academics—approach these problems. But try other questions: should we allow expert testimony on happiness recovery? Should judges after be able to order a new trial or a remittitur based on hedonic adaptation evidence and a jury verdict inconsistent with that evidence?

[Richard A Epstein]

Here is a quick observation that suggests that plaintiff lawyers already understand something of this point. Years ago one strong plaintiff lawyer told me that he always had his injured person come to court once, because of the sheer horror that it instilled in the jurors. but he said that he did not keep the victim in the room because he did not want the jury to see how the victim had adapted to his injuries, given that this would lower compensation levels. The wisdom of the street, yet again.

[James]

I'm not sure I agree with Professor Picker's approach to fatalities. True, we can't compensate dead people, but we can deter behavior that leads to their deaths. If we don't think families need to be compensated, the money could go somewhere else. We don't want to count a death as having zero cost just because the family doesn't care.

[JackD]

The suggestion that we should allow expert testimony on "happiness" damages is pretty close to what was attempted previously when a fledgling cottage industry of experts on hedonic damages, and the calculation thereof, appeared like mushrooms only to disappear when the sunlight of judicial rejection struck it. One does wonder what the judicial reaction might be in light of Daubert jurisprudence. It would probably be entertaining to watch.
As to "abled", "disabled", and some mix of both juries, don't you think that Batson issues provide sufficient jury selection complications?

[Barrie Segal]

An excellent and thoughtful blog
Barrie Segal - Founder of http://www.appealnow.com and http://www.nypdblueinfo.com