Anomalies: Utility Maximization and Experienced Utility
Daniel Kahneman and
Journal of Economic Perspectives, 2006, vol. 20, issue 1, 221-234
In this column, we discuss a version of the utility maximization hypothesis that can be tested—and we find that it is false. We review empirical challenges to utility maximization, which return to the old question of whether preferences optimize the experience of outcomes. Much of this work has focused on a necessary condition for utility-maximizing choices: an ability of economic agents to make accurate, or at least unbiased, forecasts of the hedonic outcomes of potential choices. The research we review shows that this condition is not satisfied: 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. We discuss four areas in which errors of hedonic forecasting and choice have been documented: 1) where the emotional or motivational state of the agent is very different at t0 and at t1; 2) where the nature of the decision focuses attention on aspects of the outcome that will not be salient when it is actually experienced; 3) when choices are made on the basis of flawed evaluations of past experiences; and 4) when people forecast their future adjustment to new life circumstances.
Note: DOI: 10.1257/089533006776526076
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (202) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:jecper:v:20:y:2006:i:1:p:221-234
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Economic Perspectives is currently edited by Enrico Moretti
More articles in Journal of Economic Perspectives from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().