The Dissociation between Monetary Assessments and Predicted Utility

28 Pages Posted: 24 Jul 2006  

On Amir

University of California, San Diego (UCSD) - Rady School of Management

Dan Ariely

Duke University - Fuqua School of Business

Ziv Carmon

INSEAD - Marketing

Date Written: October 2006

Abstract

We study the dissociation between two common measures of value - monetary assessment of purchase options versus the predicted utility associated with owning or consuming those options, a disparity that is reflected in well-known judgment anomalies and is important for interpreting market research data. We propose that a significant cause of this dissociation is the difference in how these two types of evaluations are formed - each is informed by different types of information. Thus, dissociation between these two types of measures is not caused by failure to map utility onto money, since such mapping is not really attempted. Specifically, we suggest that monetary assessment tends to focus on the transaction in which the purchase alternative would be acquired or forgone (e.g., how fair the transaction seems), failing to adequately reflect the purchase alternative itself (e.g., the pleasure of consuming it), which is what informs predicted utility judgments. We illustrate the value of this idea by deriving and testing empirical predictions of disparities in impact of different types of information and manipulations on the two types of assessment.

Keywords: Decision-Making, Buyer Behavior, Market Research

JEL Classification: D11, D46, J3, M3

Suggested Citation

Amir, On and Ariely, Dan and Carmon, Ziv, The Dissociation between Monetary Assessments and Predicted Utility (October 2006). Available at SSRN: https://ssrn.com/abstract=918260 or http://dx.doi.org/10.2139/ssrn.918260

On Amir (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-2023 (Phone)
858-534-0745 (Fax)

HOME PAGE: http://management.ucsd.edu/faculty/directory/amir/

Dan Ariely

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 381-4366 (Phone)

Ziv Carmon

INSEAD - Marketing ( email )

1 Ayer Rajah Ave
Singapore, 138676
Singapore

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