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Economic Consequences of Mispredicting Utility

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  • Bruno 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 well-being 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. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Bruno Frey & Alois Stutzer, 2014. "Economic Consequences of Mispredicting Utility," Journal of Happiness Studies, Springer, vol. 15(4), pages 937-956, August.
  • Handle: RePEc:spr:jhappi:v:15:y:2014:i:4:p:937-956
    DOI: 10.1007/s10902-013-9457-4
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    More about this item

    Keywords

    Adaptation; Extrinsic/intrinsic attributes; Individual decision-making; Misprediction; Subjective well-being; Time allocation; A12; D11; D12; D84; I31; J22;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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