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Determinants of Experienced Utility: Laws and Implications

Author

Listed:
  • Manel Baucells

    (RAND Corporation, Santa Monica, California 90401; and Department of Economics and Business and BGSE, Universtat Pompeu Fabra, 08005 Barcelona, Spain)

  • Rakesh K. Sarin

    (Decisions, Operations and Technology Management Area, UCLA Anderson School of Management, University of California, Los Angeles, California 90095)

Abstract

Satisfaction in experiencing the future depends on decisions made today. We consider six well-known psychological laws governing satisfaction. The laws capture habit formation and satiation. We show it is possible to formalize these laws by means of a utility model and to derive implications from the laws: wanting versus liking, crescendo, recharge periods, variety seeking, and craving. The discussion combines mathematical propositions, experimental findings in psychology, and time-honored wisdom. We discuss how the sixth law---projection bias---may lead to incorrect predictions of experienced utility and suboptimal life-balance choices.

Suggested Citation

  • Manel Baucells & Rakesh K. Sarin, 2013. "Determinants of Experienced Utility: Laws and Implications," Decision Analysis, INFORMS, vol. 10(2), pages 135-151, June.
    • Handle: RePEc:inm:ordeca:v:10:y:2013:i:2:p:135-151
    DOI: 10.1287/deca.2013.0270
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    References listed on IDEAS

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    Cited by:

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    4. Rakesh K. Sarin & L. Robin Keller, 2013. "From the Editors ---Group Decisions, Preference Elicitation, Experienced Utility, Survival Probabilities, and Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 99-102, June.
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