Adaptive utility

Arthur Robson, Lorne A. Whitehead and Nikolaus Robalino

Journal of Economic Behavior & Organization, 2023, vol. 211, issue C, 60-81

Abstract: This paper models the real-time adaptation of utility when individuals have a limited capacity to make fine distinctions. A simple adaptive mechanism is proposed that adapts utility to an arbitrary distribution of rewards in a way that is ultimately optimal, in terms of minimizing the probability of errors. A modified simple mechanism is approximately optimal in terms of maximizing expected utility. The model generates the so-called “hedonic treadmill” and induces a preference for rising consumption.

Keywords: Utility; Cardinal; Evolutionary biology; Adaptation; Bounded rationality (search for similar items in EconPapers)
JEL-codes: A12 D11 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:211:y:2023:i:c:p:60-81

DOI: 10.1016/j.jebo.2023.04.023

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