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Experienced versus decision utility: large-scale comparison for income-leisure preferences

Akay, Alpaslan, Bargain, Olivier and Jara Tamayo, H. Xavier (2023) Experienced versus decision utility: large-scale comparison for income-leisure preferences. Scandinavian Journal of Economics, 125 (4). 823 - 859. ISSN 0347-0520

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Identification Number: 10.1111/sjoe.12538

Abstract

Subjective well-being (SWB) data are increasingly used to perform welfare analysis. Interpreted as “experienced utility”, it has recently been compared to “decision utility” using small-scale experiments most often based on stated preferences. We transpose this comparison to the framework of non-experimental and large-scale data commonly used for policy analysis, focusing on the income–leisure domain where redistributive policies operate. Using the British Household Panel Survey, we suggest a “deviation” measure, which is simply the difference between actual working hours and SWB-maximizing hours. We show that about three-quarters of individuals make decisions that are not inconsistent with maximizing their SWB. We discuss the potential channels that explain the lack of optimization when deviations are significantly large. We find proxies for a number of individual and external constraints, and show that constraints alone can explain more than half of the deviations. In our context, deviations partly reflect the inability of the revealed preference approach to account for labor market rigidities, so the actual and SWB-maximizing hours should be used in a complementary manner. The suggested approach based on our deviation metric could help identify labor market frictions.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/14679442
Additional Information: © 2023 The Authors
Divisions: International Inequalities Institute
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences
JEL classification: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C90 - General
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I31 - General Welfare; Basic Needs; Living Standards; Quality of Life; Happiness
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply
Date Deposited: 06 Jan 2023 10:18
Last Modified: 22 May 2024 17:31
URI: http://eprints.lse.ac.uk/id/eprint/117746

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