The Evolution of Decision and Experienced Utilities
AbstractPsychologists 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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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1678.
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
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-21 (All new papers)
- NEP-EVO-2008-10-21 (Evolutionary Economics)
- NEP-UPT-2008-10-21 (Utility Models & Prospect Theory)
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