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The Evolution of Decision and Experienced Utilities

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Abstract

Psychologists report that people make choices on the basis of "decision utilities" that routinely overestimate the "experienced utility" consequences of these choices. This paper argues that this dichotomy between decision and experienced utilities may be the solution to an evolutionary design problem. We examine a setting in which evolution designs agents with utility functions that must mediate intertemporal choices, and in which there is an incentive to condition current utilities on the agent's previous experience. Anticipating future utility adjustments can distort intertemporal incentives, a conflict that is attenuated by separating decision and experienced utilities.

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File URL: http://cowles.econ.yale.edu/P/cd/d16b/d1678.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1678.

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Length: 29 pages
Date of creation: Oct 2008
Date of revision: Feb 2010
Publication status: Published in Theoretical Economics (September 2011), 6(3): 311-339
Handle: RePEc:cwl:cwldpp:1678

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Discounting; Evolution; Present bias; Time preference;

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References

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  1. Hansson, Ingemar & Stuart, Charles, 1990. "Malthusian Selection of Preferences," American Economic Review, American Economic Association, vol. 80(3), pages 529-44, June.
  2. Larry Samuelson & Arthur J. Robson, 2007. "The Evolution of Intertemporal Preferences," American Economic Review, American Economic Association, vol. 97(2), pages 496-500, May.
  3. Curry, Philip A., 2001. "Decision Making under Uncertainty and the Evolution of Interdependent Preferences," Journal of Economic Theory, Elsevier, vol. 98(2), pages 357-369, June.
  4. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  5. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
  6. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  7. Michael Gurven & Hillard Kaplan, 2007. "Longevity Among Hunter- Gatherers: A Cross-Cultural Examination," Population and Development Review, The Population Council, Inc., vol. 33(2), pages 321-365.
  8. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, 05.
  9. Arthur J. Robson & Balazs Szentes, 2008. "Evolution of Time Preference by Natural Selection: Comment," American Economic Review, American Economic Association, vol. 98(3), pages 1178-88, June.
  10. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
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Cited by:
  1. Heutel, Garth, 2010. "Optimal Policy Instruments for Externality-Producing Durable Goods under Time Inconsistency," Working Papers 10-5, University of North Carolina at Greensboro, Department of Economics.
  2. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.

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