Advanced Search
MyIDEAS: Login to save this paper or follow this series

Economic Consequences of Mispredicting Utility

Contents:

Author Info

  • Frey, Bruno S.

    ()
    (University of Zurich)

  • Stutzer, Alois

    ()
    (University of Basel)

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 well-being. 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp7430.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7430.

as in new window
Length: 30 pages
Date of creation: May 2013
Date of revision:
Publication status: forthcoming in: Journal of Happiness Studies, 2013
Handle: RePEc:iza:izadps:dp7430

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Andrew Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2003. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," DELTA Working Papers, DELTA (Ecole normale supérieure) 2003-14, DELTA (Ecole normale supérieure).
  2. Timothy, Darren & Wheaton, William C., 2001. "Intra-Urban Wage Variation, Employment Location, and Commuting Times," Journal of Urban Economics, Elsevier, vol. 50(2), pages 338-366, September.
  3. Stephan Meier & Alois Stutzer, 2008. "Is Volunteering Rewarding in Itself?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 75(297), pages 39-59, 02.
  4. Luis Rayo & Gary S. Becker, 2007. "Evolutionary Efficiency and Happiness," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 302-337.
  5. Loewenstein, George & Adler, Daniel, 1995. "A Bias in the Prediction of Tastes," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(431), pages 929-37, July.
  6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 64, pages 416.
  7. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
  8. Alois Stutzer & Bruno S. Frey, . "Does Marriage Make People Happy, Or Do Happy People Get Married?," IEW - Working Papers 143, Institute for Empirical Research in Economics - University of Zurich.
  9. Shleifer, Andrei & Bordalo, Pedro & Gennaioli, Nicola, 2012. "Salience Theory of Choice Under Risk," Scholarly Articles 10636303, Harvard University Department of Economics.
  10. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  11. Pugno, Maurizio, 2013. "Scitovsky and the income-happiness paradox," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 43(C), pages 1-10.
  12. 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.
  13. Paul Frijters & David W. Johnston & Michael A. Shields, 2011. "Life Satisfaction Dynamics with Quarterly Life Event Data," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 113(1), pages 190-211, 03.
  14. Bruno Frey & Matthias Benz & Alois Stutzer, 2004. "Introducing Procedural Utility: Not Only What, but Also How Matters," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 160(3), pages 377-, September.
  15. 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.
  16. Tatzel, Miriam, 2002. ""Money worlds" and well-being: An integration of money dispositions, materialism and price-related behavior," Journal of Economic Psychology, Elsevier, Elsevier, vol. 23(1), pages 103-126, February.
  17. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2003. "Projection Bias In Predicting Future Utility," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1209-1248, November.
  18. Weinberg, Daniel H. & Friedman, Joseph & Mayo, Stephen K., 1981. "Intraurban residential mobility: The role of transactions costs, market imperfections, and household disequilibrium," Journal of Urban Economics, Elsevier, vol. 9(3), pages 332-348, May.
  19. Alois Stutzer & Bruno S. Frey, 2004. "Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 124(2), pages 191-231.
  20. van Ommeren, Jos & Rietveld, Piet & Nijkamp, Peter, 1997. "Commuting: In Search of Jobs and Residences," Journal of Urban Economics, Elsevier, vol. 42(3), pages 402-421, November.
  21. Alois Stutzer & Bruno S. Frey, . "Stress That Doesn't Pay: The Commuting Paradox," IEW - Working Papers 151, Institute for Empirical Research in Economics - University of Zurich.
  22. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 54(1), pages 89-109, May.
  23. Oswald, Andrew J. & Powdthavee, Nattavudh, 2006. "Does Happiness Adapt? A Longitudinal Study of Disability with Implications for Economists and Judges," IZA Discussion Papers 2208, Institute for the Study of Labor (IZA).
  24. Graham, Liam & Oswald, Andrew J., 2010. "Hedonic capital, adaptation and resilience," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 76(2), pages 372-384, November.
  25. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  26. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 76(3), pages 834-852, December.
  27. Clark, Andrew E & Georgellis, Yannis & Sanfey, Peter, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 68(270), pages 221-41, May.
  28. Welsch, Heinz & Kühling, Jan, 2011. "Are pro-environmental consumption choices utility-maximizing? Evidence from subjective well-being data," Ecological Economics, Elsevier, Elsevier, vol. 72(C), pages 75-87.
  29. Comerford, David A., 2011. "Attenuating focalism in affective forecasts of the commuting experience: Implications for economic decisions and policy making," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(5), pages 691-699.
  30. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 375-405, May.
  31. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
  32. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Investigating the Patterns and Determinants of Life Satisfaction in Germany Following Reunification," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  33. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(473), pages 465-84, July.
  34. Uri Simonsohn, 2006. "New Yorkers Commute More Everywhere: Contrast Effects in the Field," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 1-9, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Frey, Bruno S. & Benesch, Christine & Stutzer, Alois, 2007. "Does watching TV make us happy?," Journal of Economic Psychology, Elsevier, Elsevier, vol. 28(3), pages 283-313, June.
  2. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5115, C.E.P.R. Discussion Papers.
  3. Bruno S. Frey & Alois Stutzer, 2010. "Recent Advances in the Economics of Individual Subjective Well-Being," Working papers, Faculty of Business and Economics - University of Basel 2010/04, Faculty of Business and Economics - University of Basel.
  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. repec:old:wpaper:322 is not listed on IDEAS
  6. Bruni, Luigino & Stanca, Luca, 2008. "Watching alone: Relational goods, television and happiness," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 65(3-4), pages 506-528, March.
  7. Juan D Carrillo & Isabelle Brocas, 2007. "Systematic errors in decision-making," Levine's Bibliography 122247000000001473, UCLA Department of Economics.
  8. Nathan Berg & Gerd Gigerenzer, 2007. "Psychology Implies Paternalism? Bounded Rationality may Reduce the Rationale to Regulate Risk-Taking," Social Choice and Welfare, Springer, Springer, vol. 28(2), pages 337-359, February.
  9. Singer, Tania & Fehr, Ernst, 2005. "The Neuroeconomics of Mind Reading and Empathy," IZA Discussion Papers 1647, Institute for the Study of Labor (IZA).
  10. 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.
  11. Welsch, Heinz, 2009. "Implications of happiness research for environmental economics," Ecological Economics, Elsevier, Elsevier, vol. 68(11), pages 2735-2742, September.
  12. Fuchs-Schündeln, Nicola, 2009. "On preferences for being self-employed," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 71(2), pages 162-171, August.
  13. Welsch, Heinz & Kühling, Jan, 2010. "Pro-environmental behavior and rational consumer choice: Evidence from surveys of life satisfaction," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(3), pages 405-420, June.
  14. Mariano Torras, 2008. "The Subjectivity Inherent in Objective Measures of Well-Being," Journal of Happiness Studies, Springer, Springer, vol. 9(4), pages 475-487, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7430. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.