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Economic Consequences of Mispredicting Utility

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  • Bruno S. Frey
  • Alois Stutzer

Abstract

In a simple conceptual framework, we organize a multitude of phenomena related to the (mis)prediction of utility. Consequences in terms of distorted choices and lower wellbeing emerge if people have to trade-off between alternatives that are characterized by attributes satisfying extrinsic desires and alternatives serving intrinsic needs. Thereby the neglect of asymmetries in adaptation is proposed as an important driver. The theoretical analysis is consistent with econometric evidence on commuting choice using data on subjective wellbeing. People show substantial adaptation to a higher labor income but not to commuting. This may account for the finding that people are not compensated for the burden of commuting.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 564.

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Length: 28 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp564

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Keywords: Adaptation; extrinsic/intrinsic attributes; individual decision-making; misprediction; subjective well-being; time allocation;

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References

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Citations

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Cited by:
  1. Stutzer, Alois & Frey, Bruno S., 2010. "Recent Advances in the Economics of Individual Subjective Well-Being," IZA Discussion Papers 4850, Institute for the Study of Labor (IZA).
  2. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioral Effects of Minimum Wages," IZA Discussion Papers 1625, Institute for the Study of Labor (IZA).
  3. Tilman Tacke & Robert J. Waldmann, 2009. "Income Distribution, Infant Mortality, and Health Care Expenditure," CEIS Research Paper 146, Tor Vergata University, CEIS, revised 30 Sep 2009.
  4. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundations of Trust and Social Preferences," IZA Discussion Papers 1641, Institute for the Study of Labor (IZA).
  5. Fehr, Ernst & Singer, Tania, 2005. "The Neuroconomics of Mind Reading and Empathy," CEPR Discussion Papers 5128, C.E.P.R. Discussion Papers.
  6. Bruno S. Frey & Christine Benesch & Alois Stutzer, . "Does watching TV make us happy?," IEW - Working Papers 241, Institute for Empirical Research in Economics - University of Zurich.
  7. repec:old:wpaper:322 is not listed on IDEAS
  8. Luigino Bruni & Luca Stanca, 2005. "Watching alone: Relational Goods, Television and Happiness," Working Papers 90, University of Milano-Bicocca, Department of Economics, revised Jun 2005.
  9. Nicola Fuchs-Schuendeln, 2008. "On Preferences for Being Self-Employed," 2008 Meeting Papers 634, Society for Economic Dynamics.
  10. Juan D Carrillo & Isabelle Brocas, 2007. "Systematic errors in decision-making," Levine's Bibliography 122247000000001473, UCLA Department of Economics.
  11. Welsch, Heinz & Kühling, Jan, 2010. "Pro-environmental behavior and rational consumer choice: Evidence from surveys of life satisfaction," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 405-420, June.
  12. Mariano Torras, 2008. "The Subjectivity Inherent in Objective Measures of Well-Being," Journal of Happiness Studies, Springer, vol. 9(4), pages 475-487, December.
  13. Welsch, Heinz, 2009. "Implications of happiness research for environmental economics," Ecological Economics, Elsevier, vol. 68(11), pages 2735-2742, September.
  14. Nathan Berg & Gerd Gigerenzer, 2007. "Psychology Implies Paternalism? Bounded Rationality may Reduce the Rationale to Regulate Risk-Taking," Social Choice and Welfare, Springer, vol. 28(2), pages 337-359, February.

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