What is Wellbeing Valuation, and why use it?

Posted on the 27th September 2017

The ASVB uses a method called Wellbeing Valuation (WV) to convert the value of social outcomes into dollar terms. But what is Wellbeing Valuation, and why do we use it?

In general, wellbeing can be defined as a broad measure of how well someone’s life is going, while valuation is described as the monetary worth of something, therefore in short Wellbeing Valuation (WV) can be defined as an approach to valuing non-market goods (like social outcomes) by assessing the impact these goods have on an individual’s wellbeing.

This form of valuation is not based on preferences, but uses subjective wellbeing data to attach values to these non-market goods, like increased confidence. This approach starts with an analysis of people’s overall life satisfaction, applies econometric methods to estimate the life satisfaction provided by the non-market good, and then converts this into a monetary value by combining it with an estimate of the effect of income on life satisfaction. Therefore, values derived using WV are not based on assumptions or preferences, but survey data which reflects the actual impacts of these non-market goods on people’s overall life satisfaction.

Why is this important?

For the past 40 years preference-based methods have been the standard approach used to value non-market goods in economics. Preference-based valuation approaches use market price proxies for value where they exist (Revealed Preference), or surveys to ask individuals their willingness to accept (WTA), which is the amount of money we would need to compensate someone for having a bad outcome, or their willingness to pay (WTP) to receive the benefits of a good outcome (Stated Preference).  However, in recent years, preference methods have come under increasing attack and scrutiny from psychologists and economists alike, who have found evidence that people may not always choose what’s in their best interests; they may make choices with poor information and are easily susceptible to reversing preferences. This means that it may be difficult to get an accurate description of someone’s welfare based on what they choose or what they say they want.[1]

Using the Wellbeing Valuation method ensures that the social values you use to calculate your impact are robust, and can be relied upon to demonstrate your social impact. Using a valuation methodology that is consistent also allows for comparison across different program areas, helping to inform your decisions about where investment is best allocated.

Why Choose the ASVB?

The ASVB was developed to improve the quality of life of Australians by providing an easily applied standard for measuring social impact to help support decision making, so that funding can achieve the greatest impact. The ASVB has done the hard work involved in robustly valuing social outcomes, so that you don’t have to.

You simply need to log in to the ASVB:

  • Select the relevant Outcome/s from our list;
  • Add who Benefited from the program, and
  • Enter how much it cost to deliver your program.

The ASVB Value Calculator will then conduct a Cost-Benefit Analysis using pre-populated Wellbeing Values to determine the monetary value of the benefits you create. These methods used by the ASVB are recognised by government and endorsed across the OECD. In 2017 the NSW Government released guidelines recommending Cost-Benefit Analysis be used “to promote a consistent approach to appraisal and evaluation of public projects, programs and policies”, and Wellbeing Valuation as an endorsed approach to value non-market goods.

If you are interested in developing the capacity within your organisation to be able to calculate the value you create by improving people’s lives, the ASVB may just be the tool for you. To find out more about the ASVB or how you can start calculating your social impact, visit our website asvb.com.au, or contact us at info@asvb.com.au.

[1] Fujiwara, D., Keohane, K., Clayton, V. & Maxwell, C. (2017) Measuring Social Impact. The Technical Reference Paper

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