Anomalies: Utility Maximization and Experienced Utility
28 Pages Posted: 16 Dec 2005
Date Written: December 1, 2005
The assumption that utility is always maximized allows often surprising inferences about the nature of the desires that guide people's ever-rational choices. This methodology has had many uses and undeniably has charm for economists, but it rests on the shaky foundation of an implausible and untestable assumption. In this paper we discuss a version of the utility maximization hypothesis that can be tested - and we find that it is false.
Keywords: Utility Maximization, Experienced Utility, Behavioral Economics
JEL Classification: D01
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