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Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction

Author

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  • Steven Carter

    () (Department of Economics, University of California-Irvine)

  • Michael McBride

    () (Department of Economics, University of California-Irvine)

Abstract

Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.

Suggested Citation

  • Steven Carter & Michael McBride, 2009. "Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction," Working Papers 080925, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:080925
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    References listed on IDEAS

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    1. repec:eee:soceco:v:73:y:2018:i:c:p:53-65 is not listed on IDEAS
    2. Philip S. Morrison & William A.V. Clark, 2016. "Loss aversion and duration of residence," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 35(36), pages 1079-1100, October.
    3. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    4. Korthals Roxanne, 2012. "Selection and tracking in secondary education: A cross country analysis of student performance and educational opportunities," ROA Research Memorandum 014, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    5. Dumludag, Devrim & Gokdemir, Ozge & Vendrik, Maarten C.M., 2015. "Relative Income and Life Satisfaction of Turkish Immigrants: The Impact of a Collectivistic Culture," IZA Discussion Papers 9282, Institute for the Study of Labor (IZA).
    6. McBride, Michael, 2010. "Money, happiness, and aspirations: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 262-276, June.
    7. repec:eee:soceco:v:68:y:2017:i:c:p:62-78 is not listed on IDEAS
    8. Powdthavee, Nattavudh & Lekfuangfu, Warn N. & Wooden, Mark, 2015. "What's the good of education on our overall quality of life? A simultaneous equation model of education and life satisfaction for Australia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 54(C), pages 10-21.
    9. repec:kap:jrisku:v:56:y:2018:i:1:d:10.1007_s11166-018-9271-9 is not listed on IDEAS
    10. Switek, Malgorzata, 2012. "Internal Migration and Life Satisfaction: Well-Being Effects of Moving as a Young Adult," IZA Discussion Papers 7016, Institute for the Study of Labor (IZA).
    11. Mitra, Atul & Jenkins, G. Douglas & Gupta, Nina & Shaw, Jason D., 2015. "The utility of pay raises/cuts: A simulation experimental study," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 150-166.

    More about this item

    Keywords

    Happiness; Utility; Experiment; Value function; Prospect theory;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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