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Experienced utility versus decision utility: Putting the ‘S’ in satisfaction

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  • Carter, Steven
  • McBride, Michael
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, we test whether post-choice satisfaction (experienced utility), like decision utility in an experimental data set, 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.

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  • Carter, Steven & McBride, Michael, 2013. "Experienced utility versus decision utility: Putting the ‘S’ in satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 13-23.
    • Handle: RePEc:eee:soceco:v:42:y:2013:i:c:p:13-23
    DOI: 10.1016/j.socec.2012.11.009
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    2. Philip S. Morrison & William A.V. Clark, 2016. "Loss aversion and duration of residence," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 35(36), pages 1079-1100.
    3. Dumludag, Devrim & Gokdemir, Ozge & Vendrik, Maarten C.M., 2015. "Relative Income and Life Satisfaction of Turkish Immigrants: The Impact of a Collectivistic Culture," IZA Discussion Papers 9282, Institute of Labor Economics (IZA).
    4. Powdthavee, Nattavudh & Lekfuangfu, Warn N. & Wooden, Mark, 2015. "What's the good of education on our overall quality of life? A simultaneous equation model of education and life satisfaction for Australia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 54(C), pages 10-21.
    5. Korthals, R.A., 2012. "Selection and tracking in secondary education: a cross country analysis of student performance and educational opportunities," ROA Research Memorandum 014, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    6. Lima de Miranda, Katharina & Snower, Dennis J., 2020. "Recoupling Economic and Social Prosperity," IZA Discussion Papers 12998, Institute of Labor Economics (IZA).
    7. Alex Markle & George Wu & Rebecca White & Aaron Sackett, 2018. "Goals as reference points in marathon running: A novel test of reference dependence," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 19-50, February.
    8. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    9. Bart Defloor & Brent Bleys & Elsy Verhofstadt & Luc Van Ootegem, 2022. "How to Reduce Individuals’ Ecological Footprint without Harming Their Well-Being: An Application to Belgium," Sustainability, MDPI, vol. 14(9), pages 1-30, April.
    10. McBride, Michael, 2010. "Money, happiness, and aspirations: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 262-276, June.
    11. Switek, Maggie, 2012. "Internal Migration and Life Satisfaction: Well-Being Effects of Moving as a Young Adult," IZA Discussion Papers 7016, Institute of Labor Economics (IZA).
    12. Mitra, Atul & Jenkins, G. Douglas & Gupta, Nina & Shaw, Jason D., 2015. "The utility of pay raises/cuts: A simulation experimental study," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 150-166.
    13. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    14. Lane, Tom, 2017. "How does happiness relate to economic behaviour? A review of the literature," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 68(C), pages 62-78.

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    More about this item

    Keywords

    Happiness; Value function; Prospect Theory;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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