Perception, Utility and Evolution

Abstract

This paper presents a model of the evolution of the hedonic utility function in which perception is imperfect. Netzer (2009) considers a model with perfect perception and finds that the optimal utility function allocates marginal utility where decisions are made frequently. This paper shows that it is also beneficial to allocate marginal utility away from more perceptible events. The introduction of perceptual errors can lead to qualitatively different utility functions, such as discontinuous functions with flat regions rather than continuous and strictly increasing functions.

Keywords: Evolution, Hedonic Utility, Perception

JEL Classification: D81, D83