#experience utility

In the last chapter studied in Antonio Rangel's Principles of Economics for Scientists, we examined consumer theory.   We examined the utility function of the consumer.  In particular, we examined the difference between the experience utility function and the decision utility function.  This turns out to be a very current topic interest; Robson & Samuelson  reviewed this topic in The Evolution of Decision and Experience Utilities in Theoretical Economics 6(2011), 311-339.  As it turns out, Robson & Samuelson are two of the principals of economics for scientist.

For people who not only ‘use’ but ‘believe in’ neoclassical economics, there is almost no point in discussing the experience utility; it is the experience utility that drives economic decisions.  This mentality is what drove the ‘Mad Men’ version of marketing; a deceptive game of overselling to the gullible masses in order to amass personal wealth by artificially driving up sales.

Clay Shirky has been arguing convincingly for at least a decade that the Internet and Social Media are completely destroying this form of marketing.  Consumers are talking with consumers and these communities are upending the ability of a marketing team to broadcast a controlled message.  So the Internet and Social Media allow users to share experiences.  These shared experiences are increasingly driving the decisions of consumers.  So there is a feedback loop at play that undercuts the ability of ‘neoclassical marketing’ to ‘hype’ a product and raise the decision utility above the experience utility.  When information flows freely, you cannot maintain a differences between the demand utility and the experience utility.