Further to this, it’s also worth pointing out that, to the extent that Andew’s biographies and rich acquaintances are talking about a logarithmic experienced utility function that maps wealth into a mind state something like “satisfaction”, this doesn’t directly imply anything about the shape of the decision utility function they should use to represent their preferences over gambles.
It’s only if they’re also risk neutral with respect to experienced utility that the implied decision utility function needs to be log(x). If they’re risk averse with respect to experienced utility then their decision utility function will be a concave function of log(x), while if they’re risk loving it will be a convex function of it.
P.S. For more on the distinction between experienced and decision utility (which I seem constantly to be harping on about) see: Kahneman, Wakker and Sarin (1997) “Back to Bentham? Explorations of Experienced Utility”
It’s only if they’re also risk neutral with respect to experienced utility
I am curious how this would look in terms of decisions under experience. Does this imply that they are expecting to change their risk assessment once they are experienced?
I’m afraid I have no idea what you mean, perhaps because I failed to adequately explain the distinction between experienced utility and decision utility, and you’ve taken it to mean something else entirely. Roughly: experienced utility is something you experience or feel (e.g. positive emotions); decision utility is an abstract function that describes the decisions you make, without necessarily corresponding to anything you actually experience.
Follow the link I gave, or see my earlier comment here (experienced utility is 1., decision utility is 2.)
Apologies if I’m failing to understand you for some other reason, such as not having slept. ;)
Further to this, it’s also worth pointing out that, to the extent that Andew’s biographies and rich acquaintances are talking about a logarithmic experienced utility function that maps wealth into a mind state something like “satisfaction”, this doesn’t directly imply anything about the shape of the decision utility function they should use to represent their preferences over gambles.
It’s only if they’re also risk neutral with respect to experienced utility that the implied decision utility function needs to be log(x). If they’re risk averse with respect to experienced utility then their decision utility function will be a concave function of log(x), while if they’re risk loving it will be a convex function of it.
P.S. For more on the distinction between experienced and decision utility (which I seem constantly to be harping on about) see: Kahneman, Wakker and Sarin (1997) “Back to Bentham? Explorations of Experienced Utility”
I am curious how this would look in terms of decisions under experience. Does this imply that they are expecting to change their risk assessment once they are experienced?
I’m afraid I have no idea what you mean, perhaps because I failed to adequately explain the distinction between experienced utility and decision utility, and you’ve taken it to mean something else entirely. Roughly: experienced utility is something you experience or feel (e.g. positive emotions); decision utility is an abstract function that describes the decisions you make, without necessarily corresponding to anything you actually experience.
Follow the link I gave, or see my earlier comment here (experienced utility is 1., decision utility is 2.)
Apologies if I’m failing to understand you for some other reason, such as not having slept. ;)