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Economic Consequences of Mispredicting Utility


Frey, Bruno S; Stutzer, Alois (2004). Economic Consequences of Mispredicting Utility. Working paper series / Institute for Empirical Research in Economics No. 218, 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 littlentime to their family, friends or hobbies, which lowers their utility level. The theoreticalnanalysis is consistent with an econometric study on commuting decisions using reported subjective well-being data.

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 littlentime to their family, friends or hobbies, which lowers their utility level. The theoreticalnanalysis is consistent with an econometric study on commuting decisions using reported subjective well-being data.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2004
Deposited On:29 Nov 2011 22:32
Last Modified:05 Apr 2016 15:10
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: https://doi.org/10.5167/uzh-52113

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