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Economic Consequences of Mispredicting Utility

Bruno Frey and Alois Stutzer

No 7430, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In a simple conceptual framework, we organize a multitude of phenomena related to the (mis)prediction of utility. Consequences in terms of distorted choices and lower wellbeing emerge if people have to trade-off between alternatives that are characterized by attributes satisfying extrinsic desires and alternatives serving intrinsic needs. Thereby the neglect of asymmetries in adaptation is proposed as an important driver. 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: time allocation; extrinsic/intrinsic attributes; individual decision-making; misprediction; adaptation; subjective well-being (search for similar items in EconPapers)
JEL-codes: A12 D11 D12 D84 I31 J22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-05
New Economics Papers: this item is included in nep-hap and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published - published in: Journal of Happiness Studies, 2014, 15(4), 937-956

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Related works:
Journal Article: Economic Consequences of Mispredicting Utility (2014) Downloads
Working Paper: Economic Consequences of Mispredicting Utility (2013) Downloads
Working Paper: Economic consequences of mispredicting utility (2008) Downloads
Working Paper: Economic Consequences of Mispredicting Utility (2004) Downloads
Working Paper: Economic Consequences of Mispredicting Utility Downloads
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