Two Selves (Experienced Utility vs. Decision Utility)
Experienced utility is the pleasure or pain of an experience; decision utility concerns how much an outcome is wanted when choosing. Kahneman explains that economic models often assume people want what they will enjoy, although the two concepts are distinct.
THE IDEA
SPEAKING OF FRAMES AND REALITY
“They will feel better about what happened if they manage to frame the outcome in terms of how much money they kept rather than how much they lost.”
“Let’s reframe the problem by changing the reference point. Imagine we did not own it; how much would we think it is worth?”
“Charge the loss to your mental account of ‘general revenue’—you will feel better!”
“They ask you to check the box to opt out of their mailing list. Their list would shrink if they asked you to check a box to opt in!”
Two Selves (Part 5, Chapter 35)
The term utility has had two distinct meanings in its long history. Jeremy Bentham opened his Introduction to the Principles of Morals and Legislation with the famous sentence “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do.” In an awkward footnote, Bentham apologized for applying the word utility to these experiences, saying that he had been unable to find a better word. To distinguish Bentham’s interpretation of the term, I will call it experienced utility.
For the last 100 years, economists have used the same word to mean something else. As economists and decision theorists apply the term, it means “wantability”—and I have called it decision utility. Expected utility theory, for example, is entirely about the rules of rationality that should govern decision utilities; it has nothing at all to say about hedonic experiences. Of course, the two concepts of utility will coincide if people want what they will enjoy, and enjoy what they chose for themselves—and this assumption of coincidence is implicit in the general idea that economic agents are rational. Rational agents are expected to know their tastes, both present and future, and they are supposed to make good decisions that will maximize these interests.
When to use it
A marketer designs a campaign that emphasizes what customers gain by switching products rather than what they lose by leaving the old one.
A negotiator frames an offer in terms of what the other party will keep rather than what they will concede.
An individual decides to charge a small financial loss to a 'rainy day' mental account to avoid emotional distress.
A policy maker chooses a default enrollment (opt-out) for a benefit program to increase participation without coercion.
FROM THEORY TO EVERYDAY LIFE
In practice
Framing Losses vs. Gains
When people focus on how much money they kept rather than how much they lost, they reframe the outcome to emphasize gains, which alters the emotional impact despite identical net results.
Changing Reference Point
Imagine you do not own an item and ask what you would pay for it. Comparing that answer with your selling price can reveal how ownership affects your valuation.
Mental Accounting for Losses
Charging a loss to a 'general revenue' mental account reduces the sting by treating it as a minor negative in a larger positive pool.
Opt-Out vs. Opt-In
Asking people to opt out of a mailing list keeps more subscribers than asking them to opt in, due to the default effect and status quo bias.
A MOMENT TO REFLECT
Put it to work.
Recall a recent decision where your experienced satisfaction differed from what you expected. What factors might have caused the divergence?
How might you reframe a current problem to better align decision utility with experienced utility?
In what ways do default options (like opt-in vs. opt-out) influence your daily choices, and how aware are you of this framing?
Often confused with
References
- An Introduction to the Principles of Morals and Legislation — Jeremy Bentham (1789)
CONTINUE THE CONVERSATION
Source texts
- Thinking, Fast and Slow (Daniel Kahneman)