Distinction Between Experienced Utility and Decision Utility

Key Insight

The term 'utility' has two distinct meanings. 'Experienced utility' refers to the actual subjective feelings of pain and pleasure that an individual undergoes, consistent with a historical understanding of utility. In contrast, 'decision utility' is the term used by economists and decision theorists, signifying 'wantability' or preference, and governs the rules of rationality in making choices, without direct reference to the hedonic quality of experiences.

The conventional economic assumption is that these two concepts of utility coincide in rational agents; people are expected to want what they will enjoy and enjoy what they choose. However, this assumption is often flawed. For instance, in a puzzle involving painful injections, people would pay more to reduce 6 injections to 4 (a one-third reduction) than to reduce 20 injections to 18 (a one-tenth reduction), even though both represent a reduction of two injections. This illustrates a clear discrepancy between decision utility and the actual experienced utility.

Such discrepancies indicate that if experienced utility, measured by the total number of identical injections, suggests equal value for reducing two injections, then paying different amounts for these reductions implies a decision error. This suggests that, in certain contexts, experienced utility should be the benchmark for evaluating decisions. A decision that results in an inconsistent valuation of the same gain or loss in experienced utility is deemed incorrect, challenging the traditional view that consistency with other preferences is the sole basis for judging rational choice.