Steven Carter () (Department of Economics, University of California-Irvine) Michael McBride () (Department of Economics, University of California-Irvine)
Abstract
Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.
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Publisher Info
Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number
080925.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Richard Layard & Guy Mayraz & Stephen J. Nickell, 2007.
"The Marginal Utility of Income,"
SOEPpapers
50, DIW Berlin, The German Socio-Economic Panel (SOEP).
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