Misperception of Consumption: Evidence from a Choice Experiment
AbstractWe investigate people's different conceptions of the economic term "consumption" when comparing with others. An Internet-based hypothetical discrete choice experiment was conducted with Japanese participants. As in other relative income comparison studies, we found that own consumption and own saving had a positive impact on utility, whereas the consumption and saving of a reference person had a negative impact on utility. However, the results show that the magnitudes of consumption and saving differ in size; saving could affect utility much more than consumption for the Japanese subjects. By using scope tests, we found that the impact of own consumption is not monotonic and so does not necessarily increase utility. This calls into question the conventional assumption of the monotonicity of "the utility of consumption"; consumption could be perceived as a negative good. Our results, therefore, provide some evidence that, in reality, people understand and perceive the economic terms differently from what economists would expect. Furthermore, when considering the consumption of others as well as their own, the size of the discrepancy is even bigger.
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Date of creation: Mar 2014
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Relative Utility ; Choice Experiment ; Misperception of Economic Terms;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-CBE-2014-04-11 (Cognitive & Behavioural Economics)
- NEP-DCM-2014-04-11 (Discrete Choice Models)
- NEP-EXP-2014-04-11 (Experimental Economics)
- NEP-GER-2014-04-11 (German Papers)
- NEP-UPT-2014-04-11 (Utility Models & Prospect Theory)
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