On (not) maximizing utility

People do not always know what they will like; they often make systematic errors in predicting their future experience of outcomes; and as a result fail to maximize their experienced utility.

That's the message of this recent paper by Daniel Kahneman and Richard Thaler. They discuss four ways in which our choices can fail to make us maximally happy:
1. When we make the choice in a different emotional state than we'll be in when we experience the pay-off. "Shoppers who are hungry tend to buy food as if they expect to remain permanently famished."
2. When the framing of the choice draws attention to features that will be missing when the outcome is experienced. When people were asked to predict how much they'd enjoy a bag of crisps, they reported more happiness if they could see a tin of sardines than if they saw a chocolate bar.
3. When choices are made on the basis of flawed memories. Our memories of pain are insensitive to the length of the experience, so we sometimes choose longer periods of discomfort than we should.
4. When we fail to anticipate how we'll adapt to chaged circumstances. The effects of dramatic life changes, such as becoming paraplegic or winning the lottery, are surprisingly short-lived.
Read the whole thing - you'll probably learn more about yourself than about economics. 

Comments

[dearieme]

It's their own bloody fault for not letting Mr Blair make their choices for them.

[Maynard Handley]

An interesting paper, but allow me the following rant.

What the hell is it with social scientist types (economists seem especially bad) and their use of double spacing? I don't think I have ever once in my life downloaded a paper from arxiv (the physics/math paper repository) that was double spaced; and converserly I don't think I've ever downloaded an economics paper that wasn't. Do economists have some sort of delusion that their words are so precious that readers will be writing torah-like commentaries under each line?
How the fuck does it improve anyone's utility that to print this damn thing out I have to use twice as much paper, and to read it, whether on the screen or on paper, I have to use that much more concentation because the geometry of the flow of text on the page is different from anything else that one normally reads?

There are plenty of reasons already to mock the credibility of economists; why add yet another that that very clearly shows these people are out of touch with the real world?

[stu]

"The assumption that utility is always maximized"

This might be why my supervisor always makes jokes about economists