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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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  • Arthur Robson & Larry Samuelson, 2008. "The Evolution of Decision and Experienced Utilities," Cowles Foundation Discussion Papers 1678, Cowles Foundation for Research in Economics, Yale University, revised Feb 2010.
    • Handle: RePEc:cwl:cwldpp:1678
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d16/d1678.pdf
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    Cited by:

    1. Colombo, Sergio & Hanley, Nicholas & Tinch, Dugald, 2010. "Differences between Decision and Experienced Utility: An Investigation using the Choice Experiment method," Stirling Economics Discussion Papers 2010-13, University of Stirling, Division of Economics.
    2. Ingela Alger & Donald Cox, 2013. "The evolution of altruistic preferences: mothers versus fathers," Review of Economics of the Household, Springer, vol. 11(3), pages 421-446, September.
    3. Bruno Frey & Alois Stutzer, 2014. "Economic Consequences of Mispredicting Utility," Journal of Happiness Studies, Springer, vol. 15(4), pages 937-956, August.
    4. Olivier Gossner & Christoph Kuzmics, 2019. "Preferences Under Ignorance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 241-257, February.
    5. Heutel, Garth, 2010. "Optimal Policy Instruments for Externality-Producing Durable Goods under Time Inconsistency," UNCG Economics Working Papers 10-5, University of North Carolina at Greensboro, Department of Economics.
    6. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    7. Rong Hai & Andrew Postlewaite & Dirk Krueger, 2013. "On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version," PIER Working Paper Archive 14-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 15 Apr 2014.
    8. Fabrizio Adriani & Silvia Sonderegger, 2014. "Evolution of similarity judgements in intertemporal choice," Discussion Papers 2014-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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    More about this item

    Keywords

    Discounting; Evolution; Present bias; Time preference;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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