Experienced versus decision utility: large‐scale comparison for income–leisure preferences *

Alpaslan Akay, Olivier Bargain and H. Xavier Jara
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Alpaslan Akay: GU - Göteborgs Universitet = University of Gothenburg, Universidad Antonio de Nebrija
Olivier Bargain: BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics
H. Xavier Jara: LSE - London School of Economics and Political Science

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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: Labor supply; Subjective well-being; Experienced utility; Decision utility (search for similar items in EconPapers)
Date: 2023-08-18
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Published in Scandinavian Journal of Economics, 2023, 125 (4), pp.823-859. ⟨10.1111/sjoe.12538⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455646

DOI: 10.1111/sjoe.12538

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