The futile search

for true utility

Roberto FumagalliLondon School of Economics

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Contents

I. From decision utility to true utility

II. True utility: empirical objections

III. True utility: conceptual objections

IV. Concluding remarks

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I.I. From decision utility to true utilityFrom decision utility to true utility

• Utility: a variety of meanings…

1) decision utility: mathematical representation of preferences to be inferred from observed choices

2) experienced utility: hedonic magnitude reflecting agents’ experiences of pleasure and pain (Kahneman, 2000)

3) neural utility: objective quantity directly measurable in neural areas’ activation patterns (Glimcher, Dorris and Bayer, 2005)

NOTE: I refer to 2 and 3 as ‘true utility’…

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Why true utility?

• Rational choice theory regards behaviour as rational to the extent that the underlying preferences satisfy specific consistency requirements

• this notion of rationality concerns what choices are consistent with one’s beliefs and desires, with no explicit assumption being made about the neuro-psychological substrates of decisions

• however, systematic violations of consistency requirements have been observed (e.g. reference points, framing effects, etc.)

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• How to respond to anomalies?

- modify economic models so as to reconcile them with the available evidence concerning people’s behaviour

- replace economists’ formal notion of rationality with a substantive one

The idea: view agents as ranking outcomes in terms of some

objective measure, and complement - or replace - decision utility as

a central concept of decision theory (Kahneman and Sugden, 2005)

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Experienced Utility

• Three types (Kahneman, Wakker and Sarin, 1997):

- instant utility: a moment-based measure which reflects agents’ current hedonic experience

- remembered utility: a memory-based measure inferred from one’s retrospective reports of pleasure associated with past outcomes

- anticipated utility: one’s ex ante beliefs about the hedonic quality of future experiences

• total utility: temporal integral of measurements of instant utility

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Edgeworth (1881): “imagine a perfect psychophysical machine, continually registering the height of experienced pleasure… the quantity of happiness between two epochs is represented by the area between the zero-line and the curve traced by the index”

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• Some evidence (e.g. Redelmeier and Kahneman, 1996):

- decisions significantly correlate with remembered utility

- determinants of remembered utility:

(i) duration of an episode has little impact (duration neglect)

(ii) remembered utility correlates with the average of the most intense value of instant utility recorded during an episode and the instant utility near the end of such episode (peak-end rule)

Implication: the remembered disutility of an aversive episode can be reduced by adding an extra period of discomfort that reduces peak-end average (violation of temporal monotonicity)

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Neural Utility

Idea: utility maximization is better regarded as - not so much a convenient way to represent consistent behaviour, but - an accurate description of specific areas’ activation patterns

“the utility calculations that people were assumed to do really happen in the brain” (Park and Zak, 2007)

rational choice models as a “limiting case of neural model with multiple utility types”

(Camerer, Loewenstein and Prelec, 2004)

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Evidence: agents often choose the alternative that elicits highest activity within certain brain areas

Example: activation patterns in the LIP area (lateral intraparietal area of posterior parietal cortex) track changes in expected relative rewards (Platt and Glimcher, 1999 and 2004)

Two interpretations:- empirical support to traditional utility theory (Camerer, 2007,

and Quartz, 2008)- illustration that expected utility maximization is performed by

specific neural areas (Park and Zak, 2005, and McCabe, 2008)

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PRO: it is interesting that utility theory can be applied to entities that, until recently, no economist has regarded as the target of their models (Vromen, 2010)

CONS: how do neural findings bear on economists’ concerns?

i) that utility theory can be used to characterize neural activity falls short of implying that such theory predicts higher level behaviour

ii) hard to see how neural evidence can bear on models which do not make explicit assumptions and have no straightforward implications about the neural substrates of choices

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II.II. True Utility: Empirical ObjectionsTrue Utility: Empirical Objections

• The proponents of experienced and neural utility urge economists to adopt neuro-psychologically informed measures of utility

• yet, replacing decision utility would involve a major shift in the economic account of decision making

• in this section, I examine some empirical concerns related to the use of experienced and neural utility measures

My thesis: the available neuro-psychological evidence does not commit economists to complement - or replace - decision utility

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Measurability - Experienced Utility

i) interpretative concern: some methods for measuring instant utility (e.g. experience sampling method, day reconstruction method) are less liable than life satisfaction questions to biases

OBJ: measures may noticeably vary with:

- how the examined periods are framed

- agents’ circumstances and habits

- how agents interpret and employ response scales

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ii) unity of pleasure:

Kahneman et al. (1997): pleasure and pain are two distinct attributes “joined by a distinctive neutral point […] the stimulus that gives rise to a neutral experience may [vary across] contexts, but the neutral experience itself is constant”

OBJ: it remains unclear

- what exactly a neutral experience consists in

- whether the proponents of experienced utility share a precise idea of what a unit of pleasure is supposed to be

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iii) total utility: Kahneman (2000) imposes various requirements for representing total utility as a temporal distribution of instant utilities:

- separability: the order in which instant utilities are experienced does not affect total utility

- time neutrality: all the moments of an episode are weighed alike

- ordinality: any two moments of experience can be compared to establish which of them carries the higher hedonic value

Yet, each of these assumptions is vulnerable to criticisms…

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• Separability: separability of instant utilities is justifiable if one’s measure of instant utility includes all order effects and interactions between outcomes. Yet, why should this be the case?

• Time neutrality: Kahneman et al. (1997) argue that a time-neutral perspective is “appealing, both as a rule of personal prudence and as a principle of social planning”. Still, this claim is controversial

• Ordinality: whether people can compare heterogeneous experiences is an open empirical question

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iv) interpersonal comparability: according to Kahneman (2000), the functions that relate subjective intensity to physical variables are qualitatively similar for different people. Yet:

- interpersonal comparability of experienced utility is constrained by the fact that different people may have dissimilar capacities to feel pleasure

- interpersonal comparisons of neural utility may be precluded by fact that the neural areas of people in hedonically similar states may exhibit dissimilar patterns

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Measurability - Neural Utility

i) pleasure centre: is there an anatomically separate network of areas which are responsible for computing neural utility?

• some areas’ activation patterns correlate with the expected value of specific rewards in particular choice settings

• yet, this falls short of licensing the claim that these areas compute neural utility across decision contexts

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ii) even if there was such a network of areas, identifying its components may be prohibitively complicate. For:

- dissimilar kinds of rewards may activate distinct neural circuitries, with dissimilar circuits activating across context

- the neural areas generating neural utility signals may be involved in the execution of other cognitive tasks

- neural evidence typically underdetermines the identification of the processes by means of which signals are combined…

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… two challenges (Bernheim, 2009):

- synchronic aggregation problem: ascertaining whether activation patterns reflect aggregation of feelings at different times or feelings driven by anticipated or remembered outcomes

- diachronic aggregation problem: understanding how the observed neural signals are aggregated over time

Problem: elaborating accurate empirical generalizations may be prevented by interpersonal variability in the neural architecture’s functional and anatomical organization

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iii) circularity worry: in order to identify which areas generate neural utility signals, one typically has to rely on correlations with choice behaviour or reports of well-being

Problem: neuro-physiological measures of utility may be inherently incapable of providing information besides that already disclosed by those measures

Bernheim (2009): “why use brain scans to construct noisy predictions of a subject’s answers to questions about happiness

or satisfaction when we can pose those questions directly?”

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iv)neural correlates of experienced utility: “the prospects are reasonably good for an index of current experience, which will be sensitive to the many kinds of pleasure and anguish in people's lives” (Kahneman, 2000)

EX: difference between levels of electrical activity in the left and right hemispheres (e.g. Sutton and Davidson, 1998)

OBJ:

- the neuro-physiological underpinnings of agents’ hedonic experiences are too complex to be captured by current measures

- intensity of activation of areas generating neural utility signals may fail to capture all there is to agents’ hedonic experiences

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III.III. True Utility: Conceptual ObjectionsTrue Utility: Conceptual Objections

• The challenge: “go beyond a revealed preference method to attempt to infer people’s hedonic experiences” (Rabin, 1998)

• Suppose we could elaborate reliable and accurate measures of experienced and neural utility

• Question: why should decision theory be based on these rather than decision utility?

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NE: neuro-psychological notions of utility constitute a better approximation to agents’ well-being than decision utility

OBJ: well-being depends on other aspects of life besides hedonic experiences or sets of neural activation patterns (Nozick, 1974)

Bernheim (2009): “we often consider ourselves better off when we have autonomy, liberty, and a firm grasp on reality

even if, as a consequence, we must experience less pleasurable neurobiological sensations”

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NE: experienced and neural utility provide a better approximation to the good than decision utility

OBJ 1: on what grounds should experienced or neural utility be regarded as the determinants of the choice-worthiness of actions?

Ex: imagine facing a situation where your deontological commitments preclude you from performing the actions

which yield highest experienced and neural utility…

Read (2007): “a separate value judgment is necessary before [experienced or neural] utility can be identified with the good”

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OBJ 2: why should economists commit themselves to some conception of the good?

Decision theory is agnostic as to whether the agents’ good consists in experiencing pleasure and avoiding pain, satisfying their own preferences, or enjoying high levels of well-being

OBJ 3: suppose that some notion of experienced utility tracked the agents’ good

Qua rational agent, should you maximize the value of instant, remembered or anticipated utility? By means of which procedure is each of these to be measured? Over what time intervals?

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OBJ 4: what if different people hold dissimilar views as to what measure of utility they should maximize?

Kahneman et al. (1997): “our analysis applies to situations in which a separate value judgment designates experienced utility

as relevant criterion for evaluating outcomes”

Yet, the issue is precisely when this is the case, and by means of what criterion we are supposed to identify these situations…

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Underdetermination of theory by evidence

Problem: different models of how neural utility is computed

may be elaborated, and the available evidence underdetermines them

Example: does the available evidence compellingly demonstrates the existence of a unique neural currency?

Montague and Berns (2002): “without a unique currency in the nervous system, a creature would be unable to assess

the relative value of different courses of action”

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• common currency hypothesis: dopamine release is a central component of a mechanism specialized in computing neural utility

OBJ:

- the dopaminergic system is not the only neural circuitry involved in implementing reward evaluations (e.g. Schultz, 2000)

- there is no agreement as to how many reward evaluation circuitries can be distinguished in the brain (McCabe, 2008)

- one may provide empirically equivalent conceptualizations which dramatically differ in the number of postulated currencies (Hare, 2008)

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Concluding RemarksConcluding Remarks

• In the recent literature at the boundary between economics, psychology and neuroscience, various measures of experienced and neural utility have been advocated

• “it is fruitful to distinguish among different conceptions of utility rather than presume that one concept motivates all human choices and registers all experiences” (Kahneman and Krueger, 2006)

• even so, profound dissimilarities remain between decision utility and neuro-psychological notions of true utility

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• advances in neuro-psychological research may well inform economic welfare analysis and policy evaluation

• yet, it remains unclear why economists should complement - or replace - decision utility as central concept of decision theory

• the search for true utility is

- incomplete, as the proponents of experienced and neural utility fail to provide sufficient reasons to substitute decision utility

- futile, as neural or experienced utility are too loosely related to decision utility to inform traditional decision theory

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Questions… & Gracias!Questions… & Gracias!