Saturday, April 28, 2012

Suboptimal Choices and the Need for Experienced Individual Well-Being in Economic Analysis

Christopher K. Hsee - University of Chicago

Yuval Rottenstreich - New York University

Alois Stutzer - University of Basel and IZA

Standard economic analysis assumes that people make choices that maximize their utility. Yet both popular discourse and other fields assume that people sometimes fail to make optimal choices and thus adversely affect their own happiness. Most social sciences thus frequently describe some patterns of decision as suboptimal. We review evidence of suboptimal choices that arise for two reasons. First, people err in predicting the utility they may accrue from available choice options due to the evaluation mode. Second, people choose on the basis of salient rules that are unlikely to maximize utility. Our review is meant to highlight the possibility of a research program that combines economic analysis with measures of experienced individual well-being to improve people’s happiness.

Keywords: suboptimal choice, individual well-being, experienced utility, evaluation mode, salient rule, utility misprediction


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