Experienced utility has been studied in both psychology and economics; it provides a measure of the intensity of pleasure resulting from consumption. There are certain psychological laws that can be synthesized to provide insight into the determinants of experienced utility.
What’s Inside?
The authors propose six laws of experienced utility: relative comparison, motion of expectations, aversion to loss, diminishing sensitivity, satiation and habit formation, and projection bias. With a simple utility model, they synthesize these six well-known psychological determinants and derive novel implications that provide insight into the impact of satiation on experienced utility.
How Is This Research Useful to Practitioners?
Satiation and habituation affect the experienced utility of future consumption. The authors find that experienced utility is generally maximized by using a less-to-more, or crescendo, strategy in which consumption increases over time.
The authors report that wanting and liking are often mutually exclusive. Desirability may be elevated because of an individual’s desire to avoid the pain of withdrawal. Once a habit is formed, it is often challenging to abandon it. According to the authors, experienced utility can be maximized by intentionally selecting only a minimal number of habit-forming goods. Life simplicity may actually be optimal and may increase experienced utility as well as life satisfaction.
Furthermore, because of projection bias, individuals do not naturally maximize experienced utility. This projection bias may lead individuals to misallocate time between work and leisure activities, such as family, hobbies, and rest.
How Did the Authors Conduct This Research?
The authors formalize the six laws of experienced utility with a model to derive insights from these determinants. They also use findings from other researchers and make relevant comparisons.
By exploring the link between satiation, habit, and experienced utility, the authors discover that satiation and habit are governed by two discrete parameters in the utility models. The optimal consumption plan is one that maximizes experienced utility based on the relative values of these two parameters. The authors put forth and confirm several propositions.
Finally, they explore laws that determine the experienced utility of a generic time interval of consumption. They also demonstrate implications of these laws for life choices and individual consumption decisions.
Abstractor’s Viewpoint
People do not generally maximize experienced utility because of internal biases. The authors’ conclusions seem consistent with other research performed in behavioral psychology and other fields. Individuals should generally strive to make optimal decisions regarding consumption and life choices and minimize any irrational or emotional tendencies. But there are variables in addition to the six laws that affect experienced utility. I am curious to know if any additional research provides insight into whether there are any benefits to including emotions in individual decision-making processes.