Location of Repository

Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction

By Steven Carter and Michael McBride

Abstract

Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.Happiness; Utility; Experiment; Value function; Prospect theory

OAI identifier:

Suggested articles

Preview

Citations

  1. (2000). [1991]. "Endowments and Contrast in Judgements of Well-being,"
  2. (1995). A Bias in the Prediction of Tastes."
  3. (1992). Advances in Prospect Theory: Cummulative Representation of Uncertainty."
  4. (1997). Back to Bentham? Explorations of Experienced Utility."
  5. (2004). Behavioral Economics: Past, Present, and Future,"
  6. (1984). Choices, Values, and Frames."
  7. (2000). Comparison Based Satisfaction: Contrast and Empathy."
  8. (1987). Daniel Bernoulli,"
  9. (1985). Estimating Social and Nonsocial Utility Functions from Ordinal Data."
  10. (1989). Goal Concepts in Personality and Social Psychology: A Historical Perspective,”
  11. (2007). Happiness and Loss Aversion: Is Utility Concave or Convex in Relative Income?"
  12. (2004). Happiness Quantified: A Satisfaction Calculus Approach.
  13. (2008). Hedonic Adaptation and the Role of Decision and Experience in Public Policy."
  14. (1999). Hedonic Adaptation,”
  15. (2004). How Important is Methodology for the Estimates of the Determinants of Happiness?"
  16. (1995). Microeconomic Theory.
  17. (2009). Money, Happiness, and Aspirations: An Experimental Study."
  18. (1999). Objective Happiness,"
  19. (1979). Prospect Theory: An Analysis of Decision under Risk."
  20. (1998). Psychophysical Scaling,"
  21. (2001). Rational Choice in an Uncertain World: The Psychology of Decision Making. Thousand Oaks,
  22. (2008). Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles."
  23. (2001). Relative Payos and Happiness: An Experimental Study."
  24. (2008). Relativity, Rank, and the Utility of Income."
  25. (1999). Reports of Subjective Well-being: Judgemental Processes and Their Methodological Implications,"
  26. (1989). Social Utility a n dD e c i s i o nM a k i n gi nI n t e r p e r s o n a lC o m p a r i s o n s . "
  27. (1984). Subjective Well-being."
  28. (1950). The Development of Utility Theory, I"
  29. (1950). The Development of Utility Theory, II"
  30. (2008). The Marginal Utility of Income."
  31. (2008). The Reliability of Subjective Well-being Measures."
  32. (1990). Utility Functions for Nonmonetary Events."
  33. (2006). Utility Maximization and Experienced Utility."
  34. (2000). Utility of Gains and Losses: Measurement-Theoretical and Experimental Approaches. Mahwah, NJ: Lawrence Erlbaum Associates.
  35. (1999). Well-being: The Foundations of Hedonic Psychology.
  36. (1999). Wouldn’t it be Nice? Predicting Future Feelings,"

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.