The Evolution of Decision and Experienced Utilities

30 Pages Posted: 6 Oct 2008 Last revised: 17 Feb 2010

Arthur J. Robson

Simon Fraser University (SFU) - Department of Economics

Larry Samuelson

Yale University - Department of Economics; Yale University - Cowles Foundation

Date Written: February 15, 2010

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.

Keywords: Discounting, Evolution, Present bias, Time preference

JEL Classification: D1, D9

Suggested Citation

Robson, Arthur J. and Samuelson, Larry, The Evolution of Decision and Experienced Utilities (February 15, 2010). Cowles Foundation Discussion Paper No. 1678. Available at SSRN: https://ssrn.com/abstract=1279425

Arthur J. Robson

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Larry Samuelson (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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