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Suboptimal Choices and the Need for Experienced Individual Well-Being in Economic Analysis

Author

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  • Hsee, Christopher K.

    () (University of Chicago)

  • Rottenstreich, Yuval

    () (New York University)

  • Stutzer, Alois

    () (University of Basel)

Abstract

Standard economic analysis assumes that people make choices that maximize their utility. Yet both popular discourse and other fields assume that people sometimes fail to make optimal choices and thus adversely affect their own happiness. Most social sciences thus frequently describe some patterns of decision as suboptimal. We review evidence of suboptimal choices that arise for two reasons. First, people err in predicting the utility they may accrue from available choice options due to the evaluation mode. Second, people choose on the basis of salient rules that are unlikely to maximize utility. Our review is meant to highlight the possibility of a research program that combines economic analysis with measures of experienced individual well-being to improve people's happiness.

Suggested Citation

  • Hsee, Christopher K. & Rottenstreich, Yuval & Stutzer, Alois, 2012. "Suboptimal Choices and the Need for Experienced Individual Well-Being in Economic Analysis," IZA Discussion Papers 6346, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6346
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    Cited by:

    1. Bruno Frey & Alois Stutzer, 2014. "Economic Consequences of Mispredicting Utility," Journal of Happiness Studies, Springer, vol. 15(4), pages 937-956, August.
    2. Reto Odermatt & Alois Stutzer, 2015. "(Mis-)Predicted Subjective Well-Being Following Life Events," SOEPpapers on Multidisciplinary Panel Data Research 787, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Odermatt, Reto & Stutzer, Alois, 2017. "Subjective Well-Being and Public Policy," IZA Discussion Papers 11102, Institute for the Study of Labor (IZA).
    4. Comerford, David A. & Ubel, Peter A., 2013. "Effort Aversion: Job choice and compensation decisions overweight effort," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 152-162.
    5. Odermatt, Reto & Stutzer, Alois, 2015. "Smoking bans, cigarette prices and life satisfaction," Journal of Health Economics, Elsevier, vol. 44(C), pages 176-194.
    6. Odermatt, Reto & Stutzer, Alois, 2015. "Smoking bans, cigarette prices and life satisfaction," Journal of Health Economics, Elsevier, vol. 44(C), pages 176-194.

    More about this item

    Keywords

    evaluation mode; experienced utility; individual well-being; suboptimal choice; utility misprediction; salient rule;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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