In economics, utility refers to the benefits (satisfaction or happiness) consumers derive from a good, and it can be measured based on individuals’ choices between alternatives or preferences revealed in their willingness to pay. Behavioral economists have questioned past assumptions that utility is always maximized, and they have worked with both traditional and new utility measures.
- Expected utility has been used in economics as well as game and decision theory, including prospect theory, and is based on choices with uncertain outcomes.
- Discounted utility is a form of utility used in the intertemporal choice domain of behavioral economics (Berns et al., 2007).
- Experienced utility relates to actual (hedonic) experiences associated with an outcome which is associated with theories on forecasting errors like the diversification bias.
- Remembered utility suggests that people’s choices are also based on their memories of past events and is invoked in the peak-end rule.
- Instant utility and forecasted utility have been used in the area of intertemporal choice, such as research on the empathy gap, showing that forecasted utility is biased in the direction of instant utility (Camerer & Loewenstein, 2004).
- Procedural utility is relevant if people value not only outcomes, but also the processes that lead to these outcomes (Frey, Benz, & Stutzer, 2004).
- Social utility has been proposed in relation to game theory, where players not only always act self- interestedly, but also show concerns about the perceived intentions of other players and fairness (Camerer, 1997).
- In mental accounting, transaction utility refers to the perceived merit or quality of a deal, rather than just the value of an object relative to its price, as captured by acquisition utility (Thaler, 2008)
Berns, G. S., Laibson, D., & Loewenstein, G. (2007). Intertemporal choice: Toward an integrative framework. Trends in Cognitive Sciences, 11(11), 482-488.
Camerer, C. F., & Loewenstein, G. (2004). Behavioral economics: past, present and future. In C. F. Camerer, G. Loewenstein and M. Rabin (Eds.), Advances in Behavioral Economics (pp. 3-51). Princeton, NJ: Princeton University Press.
Camerer, C. F. (1997). Progress in behavioral game theory. Journal of Economic Perspectives, 11, 167-188.
Frey, B., Benz, M., & Stutzer, A. (2004). Introducing procedural utility: Not only what, but also how matters. Journal of Institutional and Theoretical Economics, 160, 377-401.
Thaler, R. H. (2008). Mental accounting and consumer choice. Marketing Science, 27, 15-25.