Economic consequences of mispredicting utility

Bruno Frey and Alois Stutzer

Working papers from Faculty of Business and Economics - University of Basel

Abstract: A framework is proposed for organizing phenomena related to the (mis)prediction of utility, in particular neglecting adaptation. A categorization is introduced that accounts for asymmetries in misprediction. In decision-making, goods and activities satisfying extrinsic desires are more salient than those serving intrinsic needs. Accordingly, there is an overconsumption of the former compared to the latter. The theoretical analysis is consistent with econometric evidence on commuting choice using data on subjective well-being. People show substantial adaptation to a higher labor income but not to commuting. This may account for the finding that people are not compensated for the burden of commuting.

Keywords: adaptation; extrinsic/intrinsic attributes; individual decision-making; misprediction; subjective well-being; time allocation (search for similar items in EconPapers)
JEL-codes: A12 D11 D12 D84 I31 J22 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Economic Consequences of Mispredicting Utility (2014)
Working Paper: Economic Consequences of Mispredicting Utility (2013)
Working Paper: Economic Consequences of Mispredicting Utility (2013)
Working Paper: Economic Consequences of Mispredicting Utility (2004)
Working Paper: Economic Consequences of Mispredicting Utility
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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2008/01

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