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

Publication type

Journal Article

Authors

Publication date

October 15, 2023

Summary:

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.

Published in

Scandinavian Journal of Economics

Volume and page numbers

Volume: 125 , p.823 -859

DOI

https://doi.org/10.1111/sjoe.12538

ISSN

3470520

Subjects

Notes

Open Access

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

© 2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of Föreningen för utgivande av the SJE.

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