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Chapter 35, titled Two Selves, begins Section Five.  Kahneman starts this chapter by discussing the concept of experienced utility. Berridge and O’Doherty define experienced utility as “the hedonic or pleasurable experience produced by the outcome when eventually gained.” A person that was attempting to maximize experienced utility would make decisions that yield the most pleasure over other attributes.  

Economists use a different definition for the word utility, the economic value derived from a decision. Kahneman uses the term expected utility.  A decision where you have a 30% chance of making $100 and a 70% chance of making nothing has an expected utility (value) of $30. As we have noted when we re-read the previous chapters, this form of utility takes a very rational view of decisions and does not factor in behavioral components. 

The difference between the rational and behavioral are the two selves referenced by Kahneman in the title.  Expected utility is about a set of rules of rationality that governs decisions. Behavioral economics reflects more of the hedonistic experience. Kahneman makes the point that expected utility tacitly makes the assumption that some making a decision know their own tastes and how they will evolve in the future so that they can make good and rational decisions based on that knowledge. I assume that is an economist’s in-joke because it is at best a significant simplifying assumption. 

Experienced and expected decisions create two potentially different decision paths.  The book uses an example of an experimental medical treatment with two flights of shots.  One set costs less but requires more shots and the other fewer shots, but costs more. The expected utility point of view would predict that the flight that costs less would be selected while experience utility would predict that the flight with less total pain would be selected. Kahneman describes this as a conflict of interest between our two selves.

Later in the chapter, there is an exploration of how humans confuse experience with the memory  – cognitive illusion (a form of bias). Memory, which we have seen in Chapter 34 is flawed. When we substitute memory for the experience we can further bias decisions made based on experienced utility. Several years ago my wife and I went to an event that includes drinks, a nice dinner, entertainment, and parking downtown. I self parked my car, getting out of the spot later was — let’s say unpleasant. My memory of that night is not positive, yet outside of that one minor part of the event, it was great. I use rideshares now. The book points out that decisions are often guided by a simple rule, we pick the option we like the most or dislike the least. How our memory processes our experiences will impact our likes and dislikes and in the end, our choice. 

One major takeaway from this chapter is that if you are constructing events (a presentation is an event as is a training class), ensure that you end on a high positive as both the peak intensity of the positive and its timing will affect how a person recalls the event.

Kahneman completes the chapter with the quote “we have strong preferences about the duration of our experience of pain and pleasure.” If it were as simple as keeping pain brief and pleasure lasting behavioral decisions would be easy. The combination of memory, peak intensity and time of pain and pleasure have an impact. Understanding how experienced utility impacts decision making is important to anyone helping teams and organizations improve performance.

Remember, if you do not have a favorite, dog-eared copy of Thinking, Fast and Slow, please buy a copy.  Using the links in this blog entry helps support the blog and its alter-ego, The Software Process and Measurement Cast. Buy a copy on Amazon,  It’s time to get reading!

Last weeks installment of Re-read Saturday is:

Week 34: Frames and Reality – 

Or start at the beginning

Week 1: Logistics and Introduction

FInally — last call for voting for the next book in the Re-read Saturday Series.  I will cut off voting tomorrow.  Currently, Crucial Conversations and The Lean Startup are neck and neck.  Make your voice heard!