Back to Bentham: should we? Large-scale comparison of decision versus experienced utility for income-leisure preferences
Olivier Bargain () and
Holguer Xavier Jara Tamayo
No 2015-02, ISER Working Paper Series from Institute for Social and Economic Research
Subjective wellâ€ being (SWB) is increasingly used as a way to measure individual wellâ€ being. Interpreted as â€œexperienced utilityâ€ , it has been compared to â€œdecision utilityâ€ using specific experiments (Kahneman et al., 1997) or stated preferences (Benjamin et al. 2012). We suggest here an original largeâ€ scale comparison between ordinal preferences elicited from SWB data and those inferred from actual choices (revealed preferences). Precisely, we focus on incomeâ€ leisure preferences, closely associated to redistributive policies. We compare indifference curves consistent with incomeâ€ leisure subjective satisfaction with those derived from actual labor supply choices, on the same panel of British households. Results show striking similarities between these measures on average, reflecting that overall, peopleâ€™s decision are not inconsistent with SWB maximization. Yet, the shape of individual preferences differ across approaches when looking at specific subpopulations. We investigate these differences and test for potential explanatory channels, particularly the roles of constraints and of individual â€œerrorsâ€ related to aspirations, expectations or focusing illusion. We draw implications of our results for welfare analysis and policy evaluation.
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Working Paper: Back To Bentham: Should We? LargeScale Comparison of Decision versus Experienced Utility for IncomeLeisure Preferences (2015)
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