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

Listed author(s):
  • Hsee, Christopher K.

    ()

    (University of Chicago)

  • Rottenstreich, Yuval

    ()

    (New York University)

  • Stutzer, Alois

    ()

    (University of Basel)

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.

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File URL: http://ftp.iza.org/dp6346.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6346.

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Length: 35 pages
Date of creation: Feb 2012
Publication status: published in: International Journal of Happiness and Development, 2012, 1 (1), 63-85
Handle: RePEc:iza:izadps:dp6346
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