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

Economic Consequences of Mispredicting Utility

Contents:

Author Info

  • Bruno S. Frey
  • Alois Stutzer

Abstract

Individuals make systematic mistakes in their decisions, because they mispredict utility from choice options. When deciding, extrinsic attributes of choice options are more salient than intrinsic attributes. Adaptation is neglected, recollection of feelings is distorted, decisions are rationalized and wrong intuitive theories of happiness are applied. People overestimate extrinsic attributes and therefore put too much emphasis on acquiring income and gaining status. In contrast, they underestimate intrinsic attributes and devote too little time to their family, friends or hobbies, which lowers their utility level. The theoretical analysis is consistent with an econometric study on commuting decisions using reported subjective well-being data.

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://www.iew.uzh.ch/wp/iewwp218.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 218.

as in new window
Length:
Date of creation:
Date of revision:
Handle: RePEc:zur:iewwpx:218

Contact details of provider:
Postal: Blümlisalpstrasse 10, CH-8006 Zürich
Phone: +41-1-634 22 05
Fax: +41-1-634 49 07
Email:
Web page: http://www.econ.uzh.ch/
More information through EDIRC

Related research

Keywords: adaptation; extrinsic/intrinsic attributes; individual decision-making; misprediction; subjective well-being; 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. 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.
  2. 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.
  3. Maurizio Pugno, 2011. "Scitovsky and the income-happiness paradox," Working Papers, Universita' di Cassino, Dipartimento di Scienze Economiche 2011-07, Universita' di Cassino, Dipartimento di Scienze Economiche.
  4. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience Theory of Choice Under Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1243-1285.
  5. Bruno S. Frey & Matthias Benz & Alois Stutzer, 2003. "Introducing Procedural Utility: Not only What, but also How Matters," CREMA Working Paper Series, Center for Research in Economics, Management and the Arts (CREMA) 2003-02, Center for Research in Economics, Management and the Arts (CREMA).
  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. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  8. 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.
  9. 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.
  10. 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.
  11. Alois Stutzer & Bruno S. Frey, . "Stress That Doesn't Pay: The Commuting Paradox," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 151, Institute for Empirical Research in Economics - University of Zurich.
  12. 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.
  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 S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(2), pages 402-435, June.
  15. Alois Stutzer, . "The Role of Income Aspirations in Individual Happiness," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 124, Institute for Empirical Research in Economics - University of Zurich.
  16. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," SOEPpapers on Multidisciplinary Panel Data Research 84, DIW Berlin, The German Socio-Economic Panel (SOEP).
  17. 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.
  18. Rafael Di Tella & John Haisken-De New & Robert MacCulloch, 2007. "Happiness Adaptation to Income and to Status in an Individual Panel," NBER Working Papers 13159, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
  21. 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).
  22. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
  23. 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.
  24. 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.
  25. Stutzer, Alois & Frey, Bruno S., 2005. "Does Marriage Make People Happy, Or Do Happy People Get Married?," IZA Discussion Papers 1811, Institute for the Study of Labor (IZA).
  26. 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.
  27. 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.
  28. 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.
  29. 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.
  30. 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).
  31. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(1), pages 25-46, Winter.
  32. 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.
  33. 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.
  34. Daniel Kahneman & Richard H. Thaler, 2006. "Anomalies: Utility Maximization and Experienced Utility," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(1), pages 221-234, Winter.
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. Nicola Fuchs-Schuendeln, 2008. "On Preferences for Being Self-Employed," 2008 Meeting Papers 634, Society for Economic Dynamics.
  2. 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.
  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 Foundation of Trust and Social Preferences," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5127, C.E.P.R. Discussion Papers.
  5. Tania Singer & Ernst Fehr, 2005. "The Neuroeconomics of Mind Reading and Empathy," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 340-345, May.
  6. 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.
  7. 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.
  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. 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.
  10. Welsch, Heinz, 2009. "Implications of happiness research for environmental economics," Ecological Economics, Elsevier, Elsevier, vol. 68(11), pages 2735-2742, September.
  11. 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.
  12. repec:old:wpaper:322 is not listed on IDEAS
  13. Juan D Carrillo & Isabelle Brocas, 2007. "Systematic errors in decision-making," Levine's Bibliography 122247000000001473, UCLA Department of Economics.
  14. Tilman Tacke & Robert J. Waldmann, 2009. "Income Distribution, Infant Mortality, and Health Care Expenditure," CEIS Research Paper, Tor Vergata University, CEIS 146, Tor Vergata University, CEIS, revised 30 Sep 2009.

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:zur:iewwpx:218. 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: (Marita Kieser).

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.