Journal of Happiness Studies

, Volume 15, Issue 4, pp 937–956 | Cite as

Economic Consequences of Mispredicting Utility

Research Paper

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 well-being 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

Adaptation Extrinsic/intrinsic attributes Individual decision-making Misprediction Subjective well-being Time allocation 

JEL Classification

A12 D11 D12 D84 I31 J22 

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Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ZurichZurichSwitzerland
  2. 2.Faculty of Business and EconomicsUniversity of BaselBaselSwitzerland
  3. 3.CREMA—Center for Research in Economics, Management and the ArtsBaselSwitzerland

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