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Economic consequences of mispredicting utility
Discussion paper / Internet publication
 
ID 61730
Author(s) Frey, Bruno S.; Stutzer, Alois
Author(s) at UniBasel Stutzer, Alois
Frey, Bruno S.
Year 2008
Month and day 01-14
Title Economic consequences of mispredicting utility
Series title WWZ Discussion Papers
Volume 2008
Number 01
Publisher / Institution WWZ
Keywords adaptation, extrinsic/intrinsic attributes, individual decision-making, misprediction, subjective well-being, time allocation
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.

edoc-URL http://edoc.unibas.ch/dok/A4448847
Full Text on edoc Available
 
   

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