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

35 Pages Posted: 25 Feb 2012

See all articles by Christopher K. Hsee

Christopher K. Hsee

University of Chicago - Booth School of Business

Yuval Rottenstreich

University of Chicago - Booth School of Business

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Abstract

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

JEL Classification: D01, D11, D60, D91

Suggested Citation

Hsee, Christopher K. and Rottenstreich, Yuval and Stutzer, Alois, Suboptimal Choices and the Need for Experienced Individual Well-Being in Economic Analysis. IZA Discussion Paper No. 6346. Available at SSRN: https://ssrn.com/abstract=2010941

Christopher K. Hsee (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Yuval Rottenstreich

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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