The Evolution of Decision and Experienced Utilities
Arthur J. Robson
Simon Fraser University (SFU) - Department of Economics
Yale University - Department of Economics
February 15, 2010
Cowles Foundation Discussion Paper No. 1678
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.
Number of Pages in PDF File: 30
Keywords: Discounting, Evolution, Present bias, Time preference
JEL Classification: D1, D9
Date posted: October 6, 2008 ; Last revised: February 17, 2010
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