Experienced versus decision utility: large-scale comparison for income-leisure preferences

Alpaslan Akay, Olivier Bargain and H. Xavier Jara Tamayo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Subjective well-being (SWB) data are increasingly used to perform welfare analysis. Interpreted as “experienced utility”, it has recently been compared to “decision utility” using small-scale experiments most often based on stated preferences. We transpose this comparison to the framework of non-experimental and large-scale data commonly used for policy analysis, focusing on the income–leisure domain where redistributive policies operate. Using the British Household Panel Survey, we suggest a “deviation” measure, which is simply the difference between actual working hours and SWB-maximizing hours. We show that about three-quarters of individuals make decisions that are not inconsistent with maximizing their SWB. We discuss the potential channels that explain the lack of optimization when deviations are significantly large. We find proxies for a number of individual and external constraints, and show that constraints alone can explain more than half of the deviations. In our context, deviations partly reflect the inability of the revealed preference approach to account for labor market rigidities, so the actual and SWB-maximizing hours should be used in a complementary manner. The suggested approach based on our deviation metric could help identify labor market frictions.

Keywords: decision utility; experienced utility; labor supply; subjective well-being (search for similar items in EconPapers)
JEL-codes: C90 I31 J22 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-10-01
New Economics Papers: this item is included in nep-dcm, nep-hap, nep-ltv and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Scandinavian Journal of Economics, 1, October, 2023, 125(4), pp. 823 - 859. ISSN: 0347-0520

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117746

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