Allowing for heterogeneity in monetary subjective well‐being valuations

Recent research on ‘happiness’ regression equations has shown how monetary values can be put on the well‐being effects of many life events (like health problems, marriage or the death of a spouse). Potentially, such work has practical implications for policy‐makers and the courts. However, this article argues that we need to be careful in such work to use the appropriate statistical method. It goes beyond previous research and allows for heterogeneity in the subjective well‐being scales. Using less restrictive models than the current literature, the article argues that standard linear or ordered response models seem consistently to overstate valuations. With data from the UK, it provides new monetary estimates of the well‐being consequences of a number of health problems, social capital indicators, marital status changes and social relationships. Copyright © 2010 John Wiley & Sons, Ltd.