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What Happiness Research Can Tell Us About Self-Control Problems and Utility Misprediction

What Happiness Research Can Tell Us About Self-Control Problems and Utility Misprediction Alois Stutzer University of Zurich Economics of Happiness - Symposium University of Southern California Los Angeles, March 17, 2006. General criticism.

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What Happiness Research Can Tell Us About Self-Control Problems and Utility Misprediction

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  1. What Happiness Research Can Tell Us About Self-Control Problems and Utility Misprediction Alois Stutzer University of Zurich Economics of Happiness - Symposium University of Southern CaliforniaLos Angeles, March 17, 2006

  2. General criticism • Neoclassical economic theory rules out systematic errors in consumption choice. • Basic view: - individuals know what they choose, i.e. • - they are able to predict utility • - they can maximize their utility • behavior reveals consistent preferences • impossible to detect and understand sub-optimal consumption decisions due to • problems of self-control • misprediction of utility

  3. Basic idea • Reported subjective well-being (SWB) = proxy measure for utility • Separation of the consumption decision and the utility thereby produced • SWB versus observed behavior • experienced utility versus decision utility • SWB = f(consumption behavior) • ex post evaluation of choice behavior • discrimination between competing theories

  4. Application: TV viewing Two views • Rational consumers spend the optimal amount of time watching TV, i.e. about as many hours as devoted to paid work(Corneo 2005). • expansion of cable TV  more TV viewing  increase in well-being • Individuals with self-control problems have difficulties switching off their TV. • possible reason: immediate benefits and negligible marginal costs • more TV viewing  decrease in well-being

  5. Testing strategies I • Subjective well-being of heavy TV viewers relative to moderate TV viewers, ceteris paribus Econometric challenges - omitted variable bias - preference heterogeneity - endogeneity bias

  6. Testing strategies II • expansion of the opportunity set (# of channels)  rational consumers: non-negative effect on SWB  consumers with self-control problem: positive effect on SWB from variety and negative effect from increased consumption = net effect? • reported frustration

  7. Data • European Social Survey (2002/03 and 2006) 21 European countries • World Values Survey (1995-97) 24 countries Total of over 70,000 observations TV consumption: 8/4 categories from “no time at all/ do not watch television or do not have access to TV” to “more than 3 hours per day” Life satisfaction: scale from 0/1 “(extremely) dissatisfied” to 10 “(extremely) satisfied” • IP Germany (Television Key Facts): number of TV channels available to 70% of the population

  8. Empirical procedure 1st step: Identification of consumers likely to have a self-control problem • proxy: TV viewing time is larger than predicted • residuals from regression TV viewingi = X + i in country j  condensed in 10 deciles 2nd step: Estimation of the effect of a higher number of TV channels on the SWB of heavy TV viewers (high positive residuals in first step regression) • interaction term between deciles of residual TV viewing and the log number of TV channels

  9. Results

  10. Results

  11. Results

  12. Results

  13. Results

  14. Results

  15. Results

  16. Concluding remarks • Methodological advances in economic happiness research allow studying systematic errors in consumption • Further application: • - eating habits and obesity • No traditional “consumption criticism” because what is “best” is evaluated according to individuals subjective preferences • No case for immediate government intervention

  17. Results

  18. Results

  19. Results

  20. Results

  21. Results

  22. Results

  23. Results

  24. Data • European Social Survey 2002/2003 • Cross-sectional survey in 22 countries • Over 40’000 observations • TV consumption: „8 categories from „no time at all“ to „more than 3 hours“ • Life satisfaction: scale from 0 „extremely unsatisfied“ to 10 „extremely satisfied“ • Working hours, age, gender, income, citizenship, employment status, education, marital status, area of living

  25. Television Consumption and Life Satisfaction (1) TV Time Income Age Gender Citizen-ship

  26. Television Consumption and Life Satisfaction (2) Family Education

  27. Television Consumption and Life Satisfaction (3) Employment status Area of living

  28. Television Consumption and Life Satisfaction (1) TV consumption

  29. Television Consumption and Life Satisfaction (summary)

  30. Television Consumption and Life Satisfaction (summary)

  31. Television Consumption and Life Satisfaction (summary)

  32. Opportunity Costs of Time

  33. Opportunity Costs of Time

  34. Opportunity Costs of Time

  35. Concluding Remarks • Individuals who watch more TV report ceteris paribus lower life satisfaction • Both directions of causality theoretically possible • Different effects for groups with different opportunity costs of time are consistent with the hypothesis of self-control problems • Groups with high opportunity costs suffer utility loss according to their own evaluations

  36. Summary statistics

  37. Intermediate Processes • Indirect effects • Financial satisfaction • Materialism / importance to be rich • Fear / feeling of safety • Trust in people • Frequency of social contacts & activities relative to others

  38. Beliefs and Preferences

  39. Intermediate Processes

  40. Intermediate Processes

  41. Television viewing • Television viewing is the most important leisure time activity • On average watching TV takes as much time as working • Reduction in working time over past years to large extent consumed by TV viewing (Robinson & Godbey 1999) • European Social Survey 2002/2003: ca. 20% watch more than 3 hours TV a day • TV viewing often a secondary activity

  42. Television viewing

  43. Television viewing • TV has a negative image • Negative impacts on society • Social capital (e.g. Putnam 2000) • Violence / Crime (e.g. Sparks & Sparks 2002) • Democracy (e.g. Gentzkow 2003) • Leisure coordination (Corneo 2001) • “Plug-in-drug”: reasonable use not possible • Addiction, self-control problems (e.g. Kubey 1996) • 40% of US adults and 70% of US Teenagers claim to watch too much TV (Kubey & Czikszentmihalyi 2002) • In “activity enjoyment ratings” TV watching ranks behind cleaning for women and behind cooking for men (Robinson & Godbey 1999)

  44. Economics of TV consumption • Little economic literature • Rational time allocation? • Revealed preferences: individuals watch so much television because it provides them with considerable utility • Behavioral economics: anomalies and biases in behavior identified • Time inconsistent preferences, self-control problems • (e.g. O’Donoghue & Rabin 1999) • Misprediction of future utility • (e.g. Loewenstein and Schkade 1999, Frey & Stutzer 2004 )

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