Skip to main content
SpringerLink
Log in

Experienced Utility as a Standard of Policy Evaluation

  • Published:
Environmental and Resource Economics Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • A. Alesina R. Di Tella R. MacCulloch (2004) ArticleTitle℈Inequality and Happiness: Are Europeans and Americans Different?’ Journal of Public Economics 88 2009–2042 Occurrence Handle10.1016/j.jpubeco.2003.07.006

    Article  Google Scholar 

  • D. Ariely G. Loewenstein D. Prelec (2003) ArticleTitle℈Coherent Arbitrariness: Stable Demand Curves Without Stable Preferences’ Quarterly Journal of Economics 118 73–105 Occurrence Handle10.1162/00335530360535153

    Article  Google Scholar 

  • Arrow, K., R. Solow, P. Portney, E. Leamer, R. Radner and H. Schuman (1993), Report of the NOAA Panel on Contingent Valuation. Report to the General Counsel of the US National Oceanic and Atmospheric Administration, Washington, DC: Resources for the Future.

  • I. Bateman A. Munro B. Rhodes C. Starmer R. Sugden (1997) ArticleTitle℈A Test of the Theory of Reference-dependent Preferences’ Quarterly Journal of Economics 112 479–505 Occurrence Handle10.1162/003355397555262

    Article  Google Scholar 

  • S. Benartzi R. H. Thaler (1995) ArticleTitle℈Myopic Loss Aversion and the Equity Premium Puzzle’ Quarterly Journal of Economics 110 73–92 Occurrence Handle10.2307/2118511

    Article  Google Scholar 

  • P. Brickman D. Coates R. Janoff-Bulman (1978) ArticleTitle℈Lottery Winners and Accident Victims: Is Happiness Relative?’ Journal of Personality and Social Psychology 36 917–927 Occurrence Handle10.1037/0022-3514.36.8.917

    Article  Google Scholar 

  • Bruni L. P. Porta (Eds) (2005) Economics and Happiness: Framing the Analysis Oxford University Press Oxford

    Google Scholar 

  • R. Carson (1997) Contingent Valuation Surveys and Tests of Insensitivity to Scope R. J. Kopp W. W. Pommerehne N. Schwarz (Eds) Determining the Value of Non-marketed Goods: Economic, Psychological and Policy Relevant Aspects of Contingent Valuation Methods Kluwer Boston

    Google Scholar 

  • S. Cohen G. W. Evans D. S. Krantz D. Stokols S. Kelly (1981) ArticleTitle℈Aircraft Noise and Children: Longitudinal and Cross-section Evidence on Adaptation to Noise and the Effecitveness of Noise Abatement’ Journal of Personality and Social Psychology 40 331–345 Occurrence Handle10.1037/0022-3514.40.2.331

    Article  Google Scholar 

  • Cohn, B. (1999), The Lay Theory of Happiness: Illusions and Biases in Judging Others. Unpublished undergraduate dissertation, Princeton University.

  • M. Csikszentmihalyi (1990) Flow: The Psychology of Optimal Experience Harper and Row New York

    Google Scholar 

  • R. Easterlin (1974) Does Economic Growth Improve the Human Lot? Some Empirical Evidence P. A. David M. W. Reder (Eds) Nations and Households in Economic Growth Academic Press New York 89–125

    Google Scholar 

  • R. Easterlin (1995) ArticleTitle℈Will Raising the Incomes of All Increase the Happiness of All?’ Journal of Economic Behavior and Organization 27 35–47 Occurrence Handle10.1016/0167-2681(95)00003-B

    Article  Google Scholar 

  • F. Edgeworth (1881/1967) Mathematical Psychics Kelley New York

    Google Scholar 

  • R. Frank (1999) Luxury Fever: Why Money Fails to Satisfy in an Era of Excess Free Press New York

    Google Scholar 

  • S. Frederick G. Loewenstein (1999) Hedonic Adaptation D. Kahneman E. Diener N. Schwarz (Eds) Well-Being: The Foundations of Hedonic Psychology Russell Sage Foundation New York 302–329

    Google Scholar 

  • B. Frey A. Stutzer (2002a) ArticleTitle℈What Can Economists Learn from Happiness Research?’ Journal of Economic Literature 40 402–435 Occurrence Handle10.1257/002205102320161320

    Article  Google Scholar 

  • B. Frey A. Stutzer (2002b) Happiness and Economics: How the Economy and Institutions Affect Human Well-Being Princeton University Press Princeton

    Google Scholar 

  • D. Gilbert E. Pinel T. Wilson S. Blumberg T. Wheatley (1998) ArticleTitle℈Immune Neglect: A Source of Durability Bias in Affective Forecasting’ Journal of Personality and Social Psychology 75 617–638 Occurrence Handle10.1037/0022-3514.75.3.617

    Article  Google Scholar 

  • D. Kahneman (2000a) Experienced Utility and Objective Happiness: A Moment-based Approach A. Tversky D. Kahneman (Eds) Choices, Values, and Frames, Cambridge University Press Cambridge

    Google Scholar 

  • D. Kahneman (2000b) Evaluation by Moments: Past and Future A. Tversky D. Kahneman (Eds) Choices, Values, and Frames, Cambridge University Press Cambridge

    Google Scholar 

  • D. Kahneman (2000c) New Challenges to the Rationality Assumption A. Tversky D. Kahneman (Eds) Choices, Values, and Frames, Cambridge University Press Cambridge

    Google Scholar 

  • D. Kahneman I. Ritov (1994) ArticleTitle℈Determinants of Stated Willingness to Pay for Public Goods: A Study in the Headline Method’ Journal of Risk and Uncertainty 9 5–38 Occurrence Handle10.1007/BF01073401

    Article  Google Scholar 

  • D. Kahneman J. Snell (1990) Predicting Utility R. Hogarth (Eds) Insights in Decision Making, University of Chicago Press Chicago

    Google Scholar 

  • D. Kahneman A. Tversky (1979) ArticleTitle℈Prospect Theory: An Analysis of Decision Under Risk’ Econometrica 47 263–291 Occurrence Handle10.2307/1914185

    Article  Google Scholar 

  • D. Kahneman C. Varey (1991) Notes on the Psychology of Utility J. Elster J. Roemer (Eds) Interpersonal Comparisons of Well-Being Cambridge University Press Cambridge 127–163

    Google Scholar 

  • D. Kahneman J. L. Knetsch R. H. Thaler (1990) ArticleTitle℈Experimental Tests of the Endowment Effect and the Coase Theorem’ Journal of Political Economy 98 1325–1348 Occurrence Handle10.1086/261737

    Article  Google Scholar 

  • D. Kahneman P. Wakker R. Sarin (1997) ArticleTitle℈Back to Bentham? Explorations of Experienced Utility’ Quarterly Journal of Economics 112 375–405 Occurrence Handle10.1162/003355397555235

    Article  Google Scholar 

  • D. Kahneman D. Schkade C. Sunstein (1998) ArticleTitle℈Shared Outrage and Erratic Awards: The Psychology of Punitive Damages’ Journal of Risk and Uncertainty 16 49–86 Occurrence Handle10.1023/A:1007710408413

    Article  Google Scholar 

  • D. Kahneman I. Ritov D. Schkade (1999) ArticleTitle℈Economic Preferences or Attitude Expressions? An Analysis of Dollar Responses to Public Issues’ Journal of Risk and Uncertainty 19 220–242 Occurrence Handle10.1023/A:1007835629236

    Article  Google Scholar 

  • D. Kahneman A. Kreuger D. Schkade N. Schwarz A. Stone (2004) ArticleTitle℈A Survey Method for Characterizing Daily Life Experience: The Day Reconstruction Method’ Science 306 1776–1780 Occurrence Handle10.1126/science.1103572

    Article  Google Scholar 

  • R. Lane (2000) The Loss of Happiness in Market Economies Yale University Press New Haven

    Google Scholar 

  • I. Langford S. Georgiou R. Day I. Bateman (1999) ArticleTitle℈Comparing Perceptions of Risk and Quality with Willingness to Pay: A Mixed Methodological Study of Public Preferences for Reducing Health Risks from Polluted Coastal Bathing Waters’ Risk Decision and Policy 4 201–220 Occurrence Handle10.1080/135753099347969

    Article  Google Scholar 

  • J. List (2003) ArticleTitle℈Does Market Experience Eliminate Market Anomalies?’ Quarterly Journal of Economics 118 41–71 Occurrence Handle10.1162/00335530360535144

    Article  Google Scholar 

  • D. Lykken A. Tellegen (1996) ArticleTitle℈Happiness is a Stochastic Phenomenon’ Psychological Science 7 246–253 Occurrence Handle10.1111/j.1467-9280.1996.tb00355.x

    Article  Google Scholar 

  • A. Munro R. Sugden (2003) ArticleTitle℈On the Theory of Reference-dependent Preferences’ Journal of Economic Behavior and Organization 50 407–428 Occurrence Handle10.1016/S0167-2681(02)00033-1

    Article  Google Scholar 

  • E. A. Phelps (2005) The Interaction of Emotion and Cognition: The Relation Between the Human Amygdala and Cognitive Awareness R. H. Hassin J. S. Uleman J. A. Nargh (Eds) The New Unconscious Oxford University Press New York 63–76

    Google Scholar 

  • W. Samuelson R. Zeckhauser (1988) ArticleTitle℈Status Quo Bias in Decision Making’ Journal of Risk and Uncertainty 1 7–59 Occurrence Handle10.1007/BF00055564

    Article  Google Scholar 

  • T. Scitovsky (1976) The Joyless Economy: The Psychology of Human Satisfaction Oxford University Press Oxford

    Google Scholar 

  • D. Schkade D. Kahneman (1998) ArticleTitle℈Does Living in California Make People Happy? A Focusing Illusion in Judgments of Life Satisfaction’ Psychological Science 9 340–346 Occurrence Handle10.1111/1467-9280.00066

    Article  Google Scholar 

  • R. Schulz S. Decker (1985) ArticleTitle℈Long-term Adjustment to Physical Disability: The Role of Social Support, Perceived Control, and Self-blame’ Journal of Personality and Social Psychology 48 1162–1172 Occurrence Handle10.1037/0022-3514.48.5.1162

    Article  Google Scholar 

  • S. S. Stevens (1975) Psychophysics: Introduction to its Perceptual, Neural and Social Prospects Wiley New York

    Google Scholar 

  • A. A. Stone S. S. Shiffman M. DeVries (1999) Rethinking Self-report Assessment Methodologies D. Kahneman E. Diener N. Schwarz (Eds) Well-Being: The Foundations of Hedonic Psychology Cambridge University Press New York 26–39

    Google Scholar 

  • F. Strack L. L. Martin N. Schwarz (1988) ArticleTitle℈Priming and Communication: Social Determinants of Information Use in Judgments of Life Satisfaction’ European Journal of Social Psychology 18 429–442

    Google Scholar 

  • R. Sugden (2004) ArticleTitle℈The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences’ American Economic Review 94 1014–1033 Occurrence Handle10.1257/0002828042002714

    Article  Google Scholar 

  • Sugden, R. (2005a), ‘Correspondence of Sentiments: An Explanation of the Pleasure of Social Interaction’, forthcoming in Bruni and Porta (2005).

  • R. Sugden (2005b) ArticleTitle℈Coping with Preference Anomalies in Cost–Benefit Analysis: A Market-Simulation Approach’ Enviromental & Resource Economics 32 129–160 Occurrence Handle10.1007/s10640-005-6031-5

    Article  Google Scholar 

  • A. Tversky D. Kahneman (1991) ArticleTitle℈Loss Aversion in Riskless Choice: A Reference-dependent Model’ Quarterly Journal of Economics 106 1039–1061 Occurrence Handle10.2307/2937956

    Article  Google Scholar 

  • H. Van Stadt Particlevan de A. Kapteyn S. van de Geer (1985) ArticleTitle℈The Relativity of Utility: Evidence from Panel Data’ Review of Economics and Statistics 67 179–187 Occurrence Handle10.2307/1924716

    Article  Google Scholar 

  • F. Herwaarden ParticleVan de A. Kapteyn B. Praag Particlevan (1977) ArticleTitle℈Twelve-Thousand Individual Welfare Functions of Income: A Comparison of Six Samples in Belgium and The Netherlands’ European Economic Review 9 283–300 Occurrence Handle10.1016/S0014-2921(77)80030-5

    Article  Google Scholar 

  • B. Praag ParticleVan B. Baarsma (2005) ArticleTitle℈Using Happiness Surveys to Value Intangibles: The Case of Airport Noise’ Economic Journal 115 224–246 Occurrence Handle10.1111/j.1468-0297.2004.00967.x

    Article  Google Scholar 

  • B. Praag ParticleVan de A. Ferrer-i-Carbonell (2004) Happiness Quantified: A Satisfaction Calculus Approach Oxford University Press Oxford

    Google Scholar 

  • N. D. Weinstein (1982) ArticleTitle℈Community Noise Problems: Evidence Against Adaptation’ Journal of Environmental Psychology 2 87–97 Occurrence Handle10.1016/S0272-4944(82)80041-8

    Article  Google Scholar 

Download references

Author information

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

Authors
  1. Daniel Kahneman
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Robert Sugden
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Robert Sugden.

Additional information

JEL classifications: D63, Q51

Rights and permissions

Reprints and permissions

About this article

Cite this article

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

Download citation

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10640-005-6032-4

Keywords

Search

Navigation