“De Gustibus Errari (pot)Est”: Utility Misprediction, Preferences for Well-being and Life Satisfaction

Becchetti LeonardoConzo Pierluigi
CEIS Research Paper
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.
Number: 327
Keywords: life satisfaction, well-being preferences, utility misprediction, subjective well-being
JEL codes: A13, D64, H50, I31
Volume: 12
Issue: 9
Date: Friday, August 8, 2014
Revision Date: Friday, August 8, 2014