Back to Bentham, Should We? Large-Scale Comparison of Experienced Versus Decision Utility

37 Pages Posted: 31 Aug 2017

See all articles by Alpaslan Akay

Alpaslan Akay

IZA Institute of Labor Economics

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Holguer X. Jara

KU Leuven

Abstract

Subjective well-being (SWB) data is increasingly used to perform welfare analyses. Interpreted as 'experienced utility', SWB has recently been compared to 'decision utility' using specific experiments, most often based on stated preferences. Results point to an overall congruence between these two types of welfare measures. We question whether these findings hold in the more general framework of non-experimental and large-scale data, i.e. the setting commonly used for policy analysis. For individuals in the British household panel, we compare the ordinal preferences either "revealed" from their labor supply decisions or elicited from their reported SWB. The results show striking similarities on average, reflecting the fact that a majority of individuals made decisions that are consistent with SWB maximization. Differences between the two welfare measures arise for particular subgroups, lending themselves to intuitive explanations that we illustrate for specific factors (health and labor market constraints, 'focusing illusion', aspirations).

Keywords: decision utility, experienced utility, labor supply, subjective well-being

JEL Classification: C90, I31, J22

Suggested Citation

Akay, Alpaslan and Bargain, Olivier and Jara, Holguer X., Back to Bentham, Should We? Large-Scale Comparison of Experienced Versus Decision Utility. IZA Discussion Paper No. 10907, Available at SSRN: https://ssrn.com/abstract=3029777

Alpaslan Akay (Contact Author)

IZA Institute of Labor Economics ( email )

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

Olivier Bargain

IZA Institute of Labor Economics ( email )

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

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Holguer X. Jara

KU Leuven ( email )

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