Optimizing Happiness

Manel Baucells and Rakesh K. Sarin
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Manel Baucells: IESE Business School
Rakesh K. Sarin: Decisions, Operations & Technology Management Area, UCLA Anderson School of Management, University of California

Chapter Chapter 14 in A Long View of Research and Practice in Operations Research and Management Science, 2010, pp 249-273 from Springer

Abstract: Abstract We consider a resource allocation problem in which time is the principal resource. Utility is derived from time-consuming leisure activities, as well as from consumption. To acquire consumption, time needs to be allocated to income generating activities (i.e., work). Leisure (e.g., social relationships, family, and rest) is considered a basic good, and its utility is evaluated using the Discounted Utility Model. Consumption is adaptive and its utility is evaluated using a reference-dependent model. Key empirical findings in the happiness literature can be explained by our time allocation model. Further, we examine the impact of projection bias on time allocation between work and leisure. Projection bias causes individuals to overrate the utility derived from income; consequently, individuals may allocate more than the optimal time to work. This misallocation may produce a scenario in which a higher wage rate results in a lower total utility.

Keywords: Life Satisfaction; Wage Rate; Reference Level; Social Comparison; Adaptation Level (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-1-4419-6810-4_14

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DOI: 10.1007/978-1-4419-6810-4_14

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