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Getting used to it: The adaptive global utility model

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  • Bradford, W. David
  • Dolan, Paul

Abstract

This paper expands the standard model of utility maximization to endogenize the ubiquitous phenomenon of adaptation. We assume that total utility is an aggregate function of the utility associated with different domains of life, with relative weights that are optimized according to the effort that the individual expends on producing utility in each domain. Comparative statics from the general maximization problem demonstrate that the traditional Slutsky equation should incorporate an additional response term to account for adaptation processes. Our adaptive global utility maximization model can be used to explain responses to changes in health.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 29 (2010)
Issue (Month): 6 (December)
Pages: 811-820

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Handle: RePEc:eee:jhecon:v:29:y:2010:i:6:p:811-820

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Utility maximization Adaptation Behavioral economics;

References

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  1. Betsey Stevenson & Justin Wolfers, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 1-102.
  2. K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
  3. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 841-77, October.
  4. Daniel Kahneman & Richard H. Thaler, 2006. "Anomalies: Utility Maximization and Experienced Utility," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 221-234, Winter.
  5. Bernard M.S. van Praag & P. Frijters & A. Ferrer-i-Carbonell, 2002. "The Anatomy of Subjective Well-being," Tinbergen Institute Discussion Papers 02-022/3, Tinbergen Institute.
  6. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 74, pages 132.
  7. Paul Dolan & Daniel Kahneman, 2008. "Interpretations Of Utility And Their Implications For The Valuation Of Health," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(525), pages 215-234, 01.
  8. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 729-58, August.
  9. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, Elsevier, vol. 21(3), pages 281-304, June.
  10. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  11. Menzel, Paul & Dolan, Paul & Richardson, Jeff & Olsen, Jan Abel, 2002. "The role of adaptation to disability and disease in health state valuation: a preliminary normative analysis," Social Science & Medicine, Elsevier, Elsevier, vol. 55(12), pages 2149-2158, December.
  12. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, Elsevier, vol. 29(1), pages 94-122, February.
  13. Sprangers, Mirjam A. G. & Schwartz, Carolyn E., 1999. "Integrating response shift into health-related quality of life research: a theoretical model," Social Science & Medicine, Elsevier, Elsevier, vol. 48(11), pages 1507-1515, June.
  14. Sendhil Mullainathan & Marianne Bertrand, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 67-72, May.
  15. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The ‘Q’ in the QALY: are we fudging it?
    by Chris Sampson in The Academic Health Economists' Blog on 2013-09-30 05:30:34
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Mario García Molina & Liliana Alejandra Chicaíza Becerra, 2013. "Felicidad:¿reemplazar o mejorar la utilidad subjetiva?," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, UN - RCE - CID.
  2. Dolan, Paul & Kavetsos, Georgios & Tsuchiya, Aki, 2013. "Sick but satisfied: The impact of life and health satisfaction on choice between health scenarios," Journal of Health Economics, Elsevier, Elsevier, vol. 32(4), pages 708-714.
  3. Paul Dolan & Richard Layard & Robert Metcalfe, 2011. "Measuring Subjective Wellbeing for Public Policy: Recommendations on Measures," CEP Special Papers 23, Centre for Economic Performance, LSE.
  4. Lee, Henry & Vlaev, Ivo & King, Dominic & Mayer, Erik & Darzi, Ara & Dolan, Paul, 2013. "Subjective well-being and the measurement of quality in healthcare," Social Science & Medicine, Elsevier, Elsevier, vol. 99(C), pages 27-34.
  5. Paul Dolan & Grace Lordan, 2013. "Moving Up and Sliding Down: An Empirical Assessment of the Effect of Social Mobility on Subjective Wellbeing," CEP Discussion Papers dp1190, Centre for Economic Performance, LSE.

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