Economic Consequences of Mispredicting Utility

Bruno Frey and Alois Stutzer

No 218, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Individuals make systematic mistakes in their decisions, because they mispredict utility from choice options. When deciding, extrinsic attributes of choice options are more salient than intrinsic attributes. Adaptation is neglected, recollection of feelings is distorted, decisions are rationalized and wrong intuitive theories of happiness are applied. People overestimate extrinsic attributes and therefore put too much emphasis on acquiring income and gaining status. In contrast, they underestimate intrinsic attributes and devote too little time to their family, friends or hobbies, which lowers their utility level. The theoretical analysis is consistent with an econometric study on commuting decisions using reported subjective well-being data.

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)
New Economics Papers: this item is included in nep-evo and nep-mic
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Citations: View citations in EconPapers (66)

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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 (2008)
Working Paper: Economic Consequences of Mispredicting Utility (2004)
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