'De Gustibus Errari (pot)Est': Utility Misprediction, Preferences for Well-Being and Life Satisfaction
Posted: 28 Aug 2014 Last revised: 10 Jan 2017
Date Written: July 18, 2014
The life satisfaction literature generally focuses on how life events affect subjective well-being. Through a contingent valuation survey we test whether well-being preferences have significant impact on life satisfaction. A sample of respondents is asked to simulate a policymaker decision consisting in allocating scarce financial resources among 11 well-being domains. Consistently with the utility misprediction hypothesis, we find that the willingness to invest more in the economic well-being domain is negatively correlated with life satisfaction. Our findings are shown to be robust when we account for unobservables related to economic fragility and non-random sample selection. Reverse causality and omitted variable bias are controlled for with instrumental variables and a sensitivity analysis on departures from exogeneity assumptions. Subsample estimates document that the less educated are more affected by the problem.
Keywords: life satisfaction, well-being preferences, utility misprediction, subjective well-being
JEL Classification: A13, D64, H50, I31
Suggested Citation: Suggested Citation