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Experienced Utility as a Standard of Policy Evaluation

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Abstract

This paper explores the possibility of basing economic appraisal on the measurement of experienced utility (utility as hedonic experience) rather than decision utility (utility as a representation of preference). Because of underestimation of the extent of hedonic adaptation to changed circumstances and because of the “focusing illusion” (exaggerating the importance of the current focus of one’s attention), individuals’ forecasts of experienced utility are subject to systematic error. Such errors induce preference anomalies which the experienced utility approach might circumvent. The “day reconstruction method” of measuring experienced utility is considered as a possible alternative to stated preference methods.

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Authors and Affiliations

  1. Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ, 08544-1013, USA

    Daniel Kahneman

  2. School of Economics, University of East Anglia, NR4 7TJ, Norwich, UK

    Robert Sugden

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  1. Daniel Kahneman
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  2. Robert Sugden
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Correspondence to Robert Sugden.

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JEL classifications: D63, Q51

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Kahneman, D., Sugden, R. Experienced Utility as a Standard of Policy Evaluation. Environ Resource Econ 32, 161–181 (2005). https://doi.org/10.1007/s10640-005-6032-4

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