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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 Alois Stutzer University of Zurich Economics of Happiness - Symposium University of Southern CaliforniaLos Angeles, March 17, 2006
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
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
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
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
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
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
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
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
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
Television Consumption and Life Satisfaction (1) TV Time Income Age Gender Citizen-ship
Television Consumption and Life Satisfaction (2) Family Education
Television Consumption and Life Satisfaction (3) Employment status Area of living
Television Consumption and Life Satisfaction (1) TV consumption
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
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
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
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)
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 )