What Is Decision Utility And Experienced Utility?

Decision utility is also called wantability, “it is inferred from choices and used to explain choices” (Goodwin, Harris, Nelson, Roach, Torras, 2015,221), which is the utility you expected to get. Decision makers have to make forecasts of different outcomes and these forecasts of utility is called hedonic forecasts and it can be explicit or implicit. While experienced utility means “the hedonic experience associated with an outcome” (Goodwin, Harris, Nelson, Roach, Torras, 2015, 221-222) which is the utility what you actually experienced. Decision utility and experienced utility should be matched relatively closely in the standard consumer model with rational decision makers who always maximize their own utility; well informed and rational.

The theory of consumer behavior has a few assumptions. First, preferences are assumed to be complete, but, we cannot measure utility quantitatively, for example, if we score A 4 and we score B 2, it means that A is better than B, but it does not mean that having A is two times better than having B, so scoring them with different numbers does not mean anything, the only thing matters is the ranking. Second, preferences are transitive, which means that if A is better than B and B is better than C than A is better than C. Third, more is better, which means that people would like to have more goods than less. Forth, we cannot aggregate utility across individuals since utilities are not observable. Fifth, in the traditional utility theory, economists use indifference curves to represent the utilities of

In this example there are two goods, food and other items, when the government is giving out cash directly, the budget line will shift to the right, and the individual can consume more food and other items. In this case, there is a pure income effect, as long as both of them are normal goods, that individual will consume more both of them. While in the food stamps program, where the government is giving out food stamps to individuals, and these stamps can only be used for purchasing foods, it may yield the same outcome, if the consumer spends more than the amount of food stamps. (Robert, 2010,73-75)However, if it is not the case, the individual may get lower utility than the case where he/she can get the cash directly. So, the traditional approach of utility can also be used to evaluate how different shocks may affect people’s