Utility: Time and Context
In the following article, I discuss some elements related to the temporal influences on utility. I start with an introduction to utility, its types and the manner in which temporal influences come into play when evaluating utility. This is followed by an evaluation of a few general effects that impact the utility derived at an instant and finally ends with a discussion on forward-looking and backwards-looking effects on utility.
The concept of utility was first proposed by Jeremy Bentham in the late 18th century to quantify and therefore measure the values that people associated with different actions. He conceptualized utility to be a function of the total pleasure and pain an action elicited, weighted by its duration, certainty and when it would happen. CITATION Ben89 l 1033 (Bentham, 1789). He believed that various stimuli and experiences, such as memories, imaginations, expectations and regrets, had quantifiable utility, which brings it quite close to the decision sciences of today. However, as the measurement of utility proved to be an issue, the theory of revealed preferences, promoted the concept of ordinal utility. Cardinal utility was once again brought back into the picture by von Neumann and Morgenstern’s Expected Utility TheoryCITATION von47 l 1033 (von Neumann ; Morgenstern, 1947). Their formulation of the utility function as being cardinal and additively separable is what is being used even today. However, the fundamental difference between the two conceptualisations is that, while Bentham considered preferences to be determined by utility, the expected utility theory argued that utility was determined by preferences. This difference in conceptualization, reverses the direction of causality in both the theories, hence, while Bentham would argue that “A person prefers option X to option Y, because X has more utility than Y”, the expected utility theory would state that “X has more utility than Y, because a person prefers option X to option Y.”
In the 20th century, the concept of utility was broken up into two different parts, decision utility and experienced utility CITATION Kah97 l 1033 (Kahneman, Wakker, ; Sarin, 1997). Decision utility describes the utility inferred from revealed preferences, measured indirectly. While, experienced utility describes the pleasure and pain elicited by a stimulus, while anticipating, experiencing or remembering, measured directly. It implies that deciding to watch a movie rather than go skydiving does not necessarily mean that one would enjoy skydiving less than the movie.CITATION Kah99 l 1033 (Kahneman, Diener, ; Schwarz, 1999)As every experience is spread over some time, so does its experienced utility. And, this is where the impact of the past and the future get involved. As this duration maybe seconds, days, months or even years, at every point in time there are up to three different kinds functions of utility operating. Anticipation or utility by looking forward is referred to as predicted utility. This may be in the form of savouring or dread. While the utility derived from memory is referred to as remembered utility.
Along with these two, there is a utility derived from the consumption experience itself. These three come together to give the instant utility, the combined utility derived from the pleasure or pain experienced by anticipation, consumption and remembering. The integral of all these instant utilities for any experience is the total utility derived from that experience.
Kahneman CITATION Kah99
l 1033 (1999) suggested that instant utility is best understood as the extent to which one wishes for the current experience to end or continue. On the one hand, we have some schools of hedonism, such as the Cyrenaics, asserting that pleasure and pain are derived solely through present experience CITATION Red12 l 1033 (Redmond, 2012), on the other hand, as far back as 1879, we have Mill CITATION Mil79
l 1033 (1879) arguing that utility from derived from thought is more important than the utility from sensory experiences. While the degree of influence can be debated, thoughts are considered to have an influence on the instant utility. This influence of thoughts on the instant utility is what results in the consumption and contrast effects.
Total utility comprises the total impact of all moments of instant utility associated with an experience CITATION Kah99 l 1033 (Kahneman, Diener, ; Schwarz, 1999). It is almost impossible to measure. While the evidence of total utility can be seen as the reason why people indulge in commitment devices, even fundamental questions such as how much does each component, anticipation, consumption and remembering, contribute to the total utility of an experience cannot be determined. The following chart details, an attempt made by CITATION Mor15 l 1033 (Morewedge, 2015) to measure total utility. The results are based on a survey, where people were asked to describe the relative contribution (out of 100%) of anticipation, consumption (“while having the experience”), and memory to the total pleasure and pain derived from a variety of shorter and longer experiences.
People do exhibit behavioural evidence of unconscious affect CITATION Win04 l 1033 (Winkielman ; Berridge, 2004), but no empirical evidence has definitively demonstrated that unconscious affect is analogous to instant utility or contributes toward total utility CITATION Kri10 l 1033 (Kringelbach ; Berridge, 2010). However, there are examples, such as Phantom limb syndrome, art therapy and priming, which impact the pleasure or pain experienced. From the above graph, it can be seen that at the least, dreams, which can be considered unconscious, do influence the total utility. Moreover, scholars have argued that even though a dream is unconscious, it can influence our mood and behaviour the next day, therefore having an impact on the utility. CITATION Mor09 l 1033 (Morewedge, C. K. ; Norton, M. I., 2009). CITATION Mor15 l 1033 (Morewedge, 2015)Consumption Effects and Contrast Effects
Consumption Effects are a result of the positive or negative experiences we may have had or imagine to have in the future. While these effects may be due to non-primary (primary experiences in the past/future) or secondary experiences (experiences of others), there are two defining characteristics of the consumption effects. Firstly, the hedonic sign (positive or negative utility derived) is the same for both the contemplated experience and the emotion evoked. i.e. Happiness (sadness) about the recall of a happy (sad) event. Secondly, the impact of the contemplated experiences is not critically dependent upon one’s current primary experience. For example, the pleasure one derives from their children’s’ happiness is not related to their current situation.
Contrast Effects arise due to the reference dependent nature of the evaluation of the current experience. They can be both positive and negative and depend entirely upon the reference point and current outcome. The defining features of the contrast effects are hedonic sign reversal between the contemplated experience and the emotion evoked, and that they have a direct impact satisfaction we derive from the primary experience. An excellent example is of Olympic silver and bronze medallists. Olympic silver medallists appear less happy on the medal stand than Olympic bronze medallists. Silver medallists presumably compare their outcome to winning the gold medal, whereas bronze medallists presumably compare their outcome to winning no medal CITATION Med95 l 1033 (Medvec, 1995)However, due to its reference dependent nature, the same past or future experience may have very different impacts on the instant utility, depending on the current outcome. Schadenfreude, taking pleasure in the misfortune of a competitor, and Gluckschmerz, being pained by their good fortune, are two contrast effects because even though they do not change the current outcome, they have an impact on the reference point.
Hedonic adaptation refers to an induvial adapting a new reference point, such as a salary increase or being married. The idea here is that, once an individual to adapts to this new reference point, a further increase may lead to little or no additional positive utility. Adaption, however, appears to be related to a stable and consistent pattern and hence, people do not seem to adapt to stochastic stimuli such as highway traffic noise. CITATION Fre99 l 1033 (Frederick & Loewenstein, 1999). Some have suggested that this process of adaptation can create a hedonic treadmill such that gradual improvements in objective standards such as income do not improve the overall happiness or subjective well?being of a person or nation, but the data do not support the strongest of these assertions CITATION Mor15 l 1033 (Morewedge, 2015)Backward-Looking Effects
For experiences of the past to influence the current utility via the consumption and contrast effects, two conditions are necessary. Firstly, the experience should be in the conscious memory, and secondly, the experience should have been similar to what is being experienced at the moment. While the memory of a good experience is a good memory, however, due to the contrast effects, equally good experiences may not generate equally good memories. CITATION Loe92 l 1033 (Loewenstein & Elster, 1992)
Another way in which the past influences the present experience, is via the learning effect, which is how past experiences change the ability to evaluate the current experience. This effect can be both conscious – such as eating at a fancy restaurant and therefore being able to tell good food from bad – or even unconscious, watching many different movies and therefore being able to differentiate between a good movie and bad without being able to articulate it. This effect is similar to Stigler and Becker’s idea of consumption capital.
The “opponent-process theory”, though different from the contrast effect is related to it, it implies that positive experiences tend to generate negative ones and vice versa. The opponent process theory states that the body acts to neutralize pain or pleasure via a physiological equilibrating mechanism, therefore, when the source of pain or pleasure is terminated, the opponent process continues to operate for some time, creating the opposite hedonic experience CITATION Sol78 l 1033 (Solomon ; Corbit, 1978). An example is of an individual being told that they no longer have cancer, would not return to their normal neutral self, but instead, go into a euphoric state.
Anticipation has been documented to play an important role in the instant utility, and sometimes plays a stronger role than even the current experience. Students consider Saturday to be the best day of the week, but most prefer Fridays to Sundays – the last day of work is preferred to the last day of the weekend CITATION Far53 l 1033 (Farber, 1953). Workers who knew they would be laid off because their plant was closing reported feeling worse more often while anticipating the loss of their jobs than during the period in which they actually became and remained unemployed CITATION Kas75 l 1033 (Kasl, Gore, ; Cobb, 1975)Savouring, anticipating positive outcomes, and dread, anticipating negative outcomes, are two kinds of forward-looking effects. Multiple studies have documented their impact on the instant utility, and a few general principles have been derived from these. Firstly, people prefer to delay a positive outcome (a kiss from a movie star) to savour it.
Similarly, people prefer to hasten negative outcomes (electric shocks) to avoid the dread, even if the shock being given now is more painful than the one being given in the future. Neurological studies have shown that people who prefer to get the higher shock now do not seem to experience any less pain, but they seem to experience more dread. CITATION Mor15 l 1033 (Morewedge, 2015)Secondly, savouring and dread become more intense as the event approaches in time. Andrykowski, Redd, and Hatfield CITATION And85
l 1033 (1985) found that cancer patients with particularly negative reactions to chemotherapy exhibit anticipatory symptoms of the treatment such as vomiting and nausea in the day before their chemotherapy is scheduled. Students who think they did poorly on exam report more negative affect than students who think they did well while they wait to receive their grade CITATION Gol09 l 1033 (Golub, Gilbert, ; Wilson, 2009).
Lastly, studies suggest that people are aware of the utilities they derive from the savouring and dread. Vacations are booked in advance, and children hoard their candy. Conversely, people prefer to hasten the date of dental appointments and the outcomes of medical tests, to diminish the anticipatory pain of the dread those experiences engender CITATION Lov00 l 1033 (Lovallo ; Kahneman, 2000).
The contrast effect is either extremely active or almost totally absent when it comes to anticipated events. When future improvements are seen to be prolonged or permanent, the contrast effect seems to be strong and strongest at the time closest to relief. The last few days of prison are considered the worst, the eagerness to graduate and a start a job is most intense in the last few months. On the other hand, rarely do people derive pleasure about their current state of wealth by imagining future poverty. This absence of the contrast effect is perhaps due to the increased consumption utility of the present. CITATION Loe92 l 1033 (Loewenstein ; Elster, 1992)