The New Science of Pleasure

Economists since the days of Adam Smith and Jeremy Bentham have traditionally viewed consumers as driven by relentless and consistent pursuit of self-interest, with their choices in the marketplace providing all the measurements needed to reveal their preferences and assess their well-being. This theory of consumer choice is empirically successful, and provides the foundation for most economic policy. However, the traditional view is now being challenged by evidence from cognitive psychology, anthropology, evolutionary biology, and neurology. This paper begins by surveying the origins of neoclassical consumer choice theory and recent developments. Following this, it reviews the newer evidence on consumer behavior, and what this implies for the measurement of consumer choice behavior and well-being.

[1]  D. Raphael,et al.  I: The Theory of Moral Sentiments , 1976 .

[2]  Mogens Fosgerau,et al.  A Theory of the Perturbed Consumer with General Budgets , 2012 .

[3]  Rosa L. Matzkin.  Identification in nonparametric limited dependent variable models with simultaneity and unobserved heterogeneity , 2012 .

[4]  Ivan Moscati.  Early Experiments in Consumer Demand Theory: 1930-1970 , 2007 .

[5]  K. Berridge,et al.  Pleasure Systems in the Brain , 2015, Neuron.

[6]  Daniel McFadden,et al.  Contingent Valuation and Social Choice , 1994 .

[7]  K. Train,et al.  Forthcoming in the International Economic Review. , 2006 .

[8]  M. Mather,et al.  Aging and emotional memory: the forgettable nature of negative images for older adults. , 2003, Journal of experimental psychology. General.

[9]  Douglas K. Freeman,et al.  Brain trust. , 1995, Science.

[10]  Glen L. Urban,et al.  Validation and lessons from the field : applications of information acceleration , 1995 .

[11]  Robert A. Pollak,et al.  Habit Formation and Dynamic Demand Functions , 1970, Journal of Political Economy.

[12]  Donald R. Lehmann,et al.  Thinking About Values in Prospect and Retrospect: Maximizing Experienced Utility , 1997 .

[13]  D. McFadden.  Free markets and fettered consumers , 2006 .

[14]  박상용.  [경제학] 현시선호이론(Revealed Preference Theory) , 1980 .

[15]  C. Leser.  Éléments d'économétrie , 1971 .

[16]  E. Coupey.  Restructuring: Constructive Processing of Information Displays in Consumer Choice , 1994 .

[17]  Maurice Kendall,et al.  Time Series , 2009, Encyclopedia of Biometrics.

[18]  Bruno S. Frey,et al.  Happiness and economics , 2001 .

[19]  K. Arrow,et al.  Capital-labor substitution and economic efficiency , 1961 .

[20]  Daniel McFadden,et al.  Economic juries and public project provision , 2012 .

[21]  R. Luce,et al.  Simultaneous conjoint measurement: A new type of fundamental measurement , 1964 .

[22]  Till Grüne-Yanoff.  A cooperative species: human reciprocity and its evolution , 2015 .

[23]  John Y. Campbell,et al.  Why is Consumption So Smooth , 1989 .

[24]  P. Samuelson,et al.  Foundations of Economic Analysis. , 1948 .

[25]  Martin Browning,et al.  Sharp for SARP: Nonparametric Bounds on the Behavioural and Welfare Effects of Price Changes , 2012 .

[26]  J. Hicks,et al.  Value and Capital , 2017 .

[27]  Donald W. Katzner.  Static Demand Theory , 1970 .

[28]  Rosa L. Matzkin.  Identification of consumers’ preferences when their choices are unobservable , 2005 .

[29]  Ernst Fehr,et al.  Neuroeconomic Foundations of Trust and Social Preferences , 2005, SSRN Electronic Journal.

[30]  Kenneth J. Arrow,et al.  Preference, production, and capital: Preference and rational choice in the theory of consumption , 1989 .

[31]  M. C. Jones,et al.  Kernel Estimators for Univariate Binary Regression , 2004 .

[32]  Daniel Read,et al.  Time and Decision , 2003 .

[33]  W. M. Gorman.  The Structure of Utility Functions , 1968 .

[34]  J Trout Rader.  Nice Demand Functions , 1973 .

[35]  Ragnar Frisch,et al.  New Methods of Measuring Marginal Utility. , 1932 .

[36]  D. Kahneman,et al.  Experimental Tests of the Endowment Effect and the Coase Theorem , 1990, Journal of Political Economy.

[37]  Christian E. Weber.  Edgeworth on Complementarity, or Edgeworth, Auspitz-Lieben, and Pareto De-Homogenized , 2005 .

[38]  B. Peleg.  UTILITY FUNCTIONS FOR PARTIALLY ORDERED TOPOLOGICAL SPACES. , 1970 .

[39]  W. Diewert.  Applications of Duality Theory , 1974 .

[40]  Nicholas E. Flores,et al.  Contingent Valuation: Controversies and Evidence , 2000 .

[41]  Rosa L. Matzkin.  Nonparametric identification and estimation of polychotomous choice models , 1993 .

[42]  U. Fischbacher,et al.  Oxytocin increases trust in humans , 2005, Nature.

[43]  Rosa L. Matzkin.  Identification in Nonparametric Simultaneous Equations Models , 2008 .

[44]  D. McFadden,et al.  Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production , 1978 .

[45]  Paul A. Samuelson,et al.  The Problem of Integrability in Utility Theory , 1950 .

[46]  C. Manski.  Dynamic choice in social settings: Learning from the experiences of others , 1993 .

[47]  Dale W. Jorgenson,et al.  The Transcendental Logarithmic Model of Aggregate Consumer Behavior , 1982 .

[48]  J. Muth.  Rational Expectations and the Theory of Price Movements , 1961 .

[49]  Daniel McFadden,et al.  Sociality, Rationality, and the Ecology of Choice , 2009 .

[50]  Daniel Kahneman,et al.  Experiences extended across time: Evaluation of moments and episodes , 1992 .

[51]  F. E..  Principles of Economics , 1890, Nature.

[52]  R. Thaler,et al.  Anomalies: Ultimatums, Dictators and Manners , 1995 .

[53]  A. Ullah,et al.  Nonparametric Econometrics , 1999 .

[54]  V. J. Hotz,et al.  Conditional Choice Probabilities and the Estimation of Dynamic Models , 1993 .

[55]  Samuel M. McClure,et al.  Separate Neural Systems Value Immediate and Delayed Monetary Rewards , 2004, Science.

[56]  D. McFadden,et al.  Consumers' Evaluation of New Products: Learning from Self and Others , 1996, Journal of Political Economy.

[57]  Germán Rodŕıguez grodri.  Unobserved Heterogeneity , 2014 .

[58]  I. Diamond,et al.  Cellular and molecular neuroscience of alcoholism. , 1997, Physiological reviews.

[59]  D. McFadden.  MEASUREMENT OF URBAN TRAVEL DEMAND , 1974 .

[60]  Cary Deck,et al.  Fight or Flight? , 2010 .

[61]  Walter Diewert,et al.  An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function , 1971, Journal of Political Economy.

[62]  Moshe Ben-Akiva,et al.  Discrete choice models incorporating revealed preferences and psychometric data , 2002 .

[63]  E. Dierker.  Excess Demand Functions , 1974 .

[64]  J. Neumann,et al.  Theory of games and economic behavior , 1945, 100 Years of Math Milestones.

[65]  Paul E. Green,et al.  Thirty Years of Conjoint Analysis: Reflections and Prospects , 2001, Interfaces.

[66]  Lars Nesheim,et al.  Nonparametric Identification and Estimation of Nonadditive Hedonic Models , 2009, SSRN Electronic Journal.

[67]  Richard M. Johnson.  Trade-Off Analysis of Consumer Values , 1974 .

[68]  Thomas M. Stoker,et al.  Welfare Comparison under Exact Aggregation , 1980 .

[69]  Colin Camerer.  Strategizing in the Brain , 2003, Science.

[70]  I. Ekeland.  Existence, uniqueness and efficiency of equilibrium in hedonic markets with multidimensional types , 2010 .

[71]  Arie Kapteyn,et al.  How sensible is the Leyden individual welfare function of income? A reply , 1994 .

[72]  D. McFadden.  The Choice Theory Approach to Market Research , 1986 .

[73]  Matthias Benz,et al.  From Imperialism to Inspiration: A Survey of Economics and Psychology , 2002 .

[74]  J. Larson,et al.  An Inquiry into the Nature and Causes of the Wealth of Nations , 2015 .

[75]  H. Ichimura,et al.  Maximum likelihood estimation of a binary choice model with random coefficients of unknown distribution , 1998 .

[76]  Shelley E. Taylor.  CURRENT DIRECTIONS IN PSYCHOLOGICAL SCIENCE Tend and Befriend Biobehavioral Bases of Affiliation Under Stress , 2022 .

[77]  B. Kőszegi.  EGO UTILITY, OVERCONFIDENCE, AND TASK CHOICE , 2006 .

[78]  I. Fisher,et al.  A statistical method for measuring "marginal utility" and testing the justice of a progressive income tax , 1927 .

[79]  E. Fehr,et al.  Altruistic punishment in humans , 2002, Nature.

[80]  H. Breiter,et al.  Human brain activation under controlled thermal stimulation and habituation to noxious heat: An fMRI study , 1999, Magnetic resonance in medicine.

[81]  L. Carstensen,et al.  Emotion and aging: experience, expression, and control. , 1997, Psychology and aging.

[82]  Kent C. Berridge,et al.  Pleasures of the brain , 2003, Brain and Cognition.

[83]  Martin Weber,et al.  Prospect Theory, Mental Accounting, and Differences in Aggregated and Segregated Evaluation of Lottery Portfolios , 2001, Manag. Sci..

[84]  John D. Hey,et al.  Are Preference Reversals Errors , 2004 .

[85]  D. Bridges.  The Euclidean distance construction of order homomorphisms , 1988 .

[86]  J. Marschak.  Binary Choice Constraints on Random Utility Indicators , 1959 .

[87]  A. Bonci,et al.  Ethanol Effects on Dopaminergic “Reward” Neurons in the Ventral Tegmental Area and the Mesolimbic Pathway , 2004 .

[88]  Walter Diewert,et al.  Duality approaches to microeconomic theory , 1993 .

[89]  D. Kahneman,et al.  Back to Bentham? Explorations of experience utility , 1997 .

[90]  Robert D. Willig,et al.  Consumer's Surplus Without Apology , 1976 .

[91]  H. Houthakker.  Revealed Preference and the Utility Function , 1950 .

[92]  K. Lancaster.  A New Approach to Consumer Theory , 1966, Journal of Political Economy.

[93]  L. McKenzie,et al.  Demand Theory Without a Utility Index , 1957 .

[94]  Daniel Houser,et al.  A functional imaging study of cooperation in two-person reciprocal exchange , 2001, Proceedings of the National Academy of Sciences of the United States of America.

[95]  G. Loewenstein,et al.  Time and Decision: Economic and Psychological Perspectives of Intertemporal Choice , 2003 .

[96]  L. Fiddick,et al.  Evolution and risky decisions , 2000, Trends in Cognitive Sciences.

[97]  D. Kahneman,et al.  Heuristics and Biases: The Psychology of Intuitive Judgment , 2002 .

[98]  J. List.  Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace , 2003 .

[99]  Steven Berry,et al.  Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market , 1998, Journal of Political Economy.

[100]  R. Shephard.  Cost and production functions , 1953 .

[101]  P. Hammond.  Money Metric Measures of Individual and Social Welfare Allowing for Environmental Externalities. , 1994 .

[102]  S. Rosen.  Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition , 1974, Journal of Political Economy.

[103]  R. Muth.  HOUSEHOLD PRODUCTION AND CONSUMER DEMAND FUNCTIONS , 1966 .

[104]  I. Fisher.  Die Zinstheorie = the theory of interest : as determined by impatience to spend income and opportunity to invest it , 1930 .

[105]  Paul Glimcher,et al.  Physiological utility theory and the neuroeconomics of choice , 2005, Games Econ. Behav..

[106]  I. Fisher,et al.  Is "Utility" the Most Suitable Term for the Concept It is Used to Denote? , 1918 .

[107]  Ariel Rubinstein,et al.  Instinctive and Cognitive Reasoning: Response Times Study , 2007 .

[108]  Masakatsu Okubo.  Intertemporal substitution and nonhomothetic preferences , 2008 .

[109]  C. Graham,et al.  The Economics of Happiness , 2021, Handbook of Labor, Human Resources and Population Economics.

[110]  J. Chipman,et al.  Compensating Variation, Consumer's Surplus, and Welfare , 1980 .

[111]  J. Horowitz.  A Smoothed Maximum Score Estimator for the Binary Response Model , 1992 .

[112]  Daniel Kahneman,et al.  Referendum contingent valuation, anchoring, and willingness to pay for public goods , 1998 .

[113]  W. Hamilton.  The genetical evolution of social behaviour. I. , 1964, Journal of theoretical biology.

[114]  John K. Dagsvik,et al.  Utility of income as a random function: Behavioral characterization and empirical evidence , 2006, Math. Soc. Sci..

[115]  W. M. Gorman.  Conditions for Additive Separability , 1968 .

[116]  Palgrave's Dictionary of Political Economy , 1925, Nature.

[117]  I. Fisher.  Are savings income , 1908 .

[118]  Rosa L. Matzkin.  Nonparametric and Distribution-Free Estimation of the Binary Threshold Crossing and the Binary Choice Models , 1992 .

[119]  J. Hausman,et al.  Contingent Valuation: Is Some Number Better than No Number? , 1994 .

[120]  J. Gross,et al.  PERSONALITY PROCESSES AND INDIVIDUAL DIFFERENCES Emotion Regulation and Memory: The Cognitive Costs of Keeping One's Cool , 2004 .

[121]  G. Debreu.  Topological Methods in Cardinal Utility Theory , 1959 .

[122]  D. Nychka,et al.  A nonparametric multiple choice method within the random utility framework , 2000 .

[123]  E. M. Burns,et al.  Palgrave's dictionary of political economy , 1925 .

[124]  J. Powell,et al.  c ○ 2004 The Review of Economic Studies Limited Endogeneity in Semiparametric Binary Response Models , 2001 .

[125]  Martin Browning,et al.  Best Nonparametric Bounds on Demand Responses , 2005 .

[126]  B. Mellers.  Choice and the relative pleasure of consequences. , 2000, Psychological bulletin.

[127]  C. Murray,et al.  Enhancing the Validity and Cross-Cultural Comparability of Measurement in Survey Research , 2003, American Political Science Review.

[128]  A. Mas-Colell,et al.  A characterization of community excess demand functions , 1974 .

[129]  John R. Hauser,et al.  Fast Polyhedral Adaptive Conjoint Estimation , 2002 .

[130]  W. Diewert,et al.  EXPENDITURE FUNCTIONS, LOCAL DUALITY, AND SECOND ORDER APPROXIMATIONS' , 1979 .

[131]  Kip Smith,et al.  The impact of the certainty context on the process of choice , 2003, Proceedings of the National Academy of Sciences of the United States of America.

[132]  Andreu Mas-Colell,et al.  A model of equilibrium with differentiated commodities , 1975 .

[133]  Colin Camerer.  Behavioral economics: reunifying psychology and economics. , 1999, Proceedings of the National Academy of Sciences of the United States of America.

[134]  David Kjellberg.  Measuring Expectations , 1999, Identification Problems in the Social Sciences.

[135]  Harold Hotelling,et al.  Demand Functions with Limited Budgets , 1935 .

[136]  U. Fischbacher,et al.  Why Social Preferences Matter - the Impact of Non-Selfish Motives on Competition, Cooperation and Incentives , 2002 .

[137]  Is Economic Theory Wrong About Human Nature , 2006 .

[138]  J. Muth.  Optimal Properties of Exponentially Weighted Forecasts , 1960 .

[139]  D. Kahneman,et al.  Well-being : the foundations of hedonic psychology , 1999 .

[140]  D. McFadden.  Cost, Revenue, and Profit Functions , 1978 .

[141]  L. J. Savage,et al.  The Foundations of Statistics , 1955 .

[142]  Daniel Kahneman,et al.  Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias , 1991 .

[143]  Jeffrey A. Dubin,et al.  An Econometric Analysis of Residential Electric Appliance Holdings and Consumption , 1984 .

[144]  J. Muellbauer,et al.  An Almost Ideal Demand System , 1980 .

[145]  Daniel McFadden,et al.  Rationality for Economists? , 1999 .

[146]  R. Lucas.  An Equilibrium Model of the Business Cycle , 1975, Journal of Political Economy.

[147]  Z. Griliches,et al.  Automobile Prices and Quality: Did the Gasoline Price Increases Change Consumer Tastes in the U.S.? , 1986 .

[148]  D. McFadden,et al.  URBAN TRAVEL DEMAND - A BEHAVIORAL ANALYSIS , 1977 .

[149]  Meghana Bhatt,et al.  Self-Referential Thinking and Equilibrium as States of Mind in Games: Fmri Evidence , 2005, Games Econ. Behav..

[150]  Colin Camerer,et al.  Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics , 2006, Journal of Marketing Research.

[151]  Paul E. Green,et al.  A General Approach to Product Design Optimization via Conjoint Analysis , 1981 .

[152]  J. Knetsch.  The Endowment Effect and Evidence of Nonreversible Indifference Curves. , 1989 .

[153]  Daniel McFadden,et al.  Computing Willingness-to-Pay in Random Utility Models , 1996 .

[154]  M. Degroot,et al.  Measuring utility by a single-response sequential method. , 1964, Behavioral science.

[155]  D. McFadden.  Revealed stochastic preference: a synthesis , 2005 .

[156]  A. Yatchew,et al.  Nonparametric Regression Techniques in Economics , 1998 .

[157]  Colin Camerer,et al.  Neuroeconomics: decision making and the brain , 2008 .

[158]  Steven Berry,et al.  Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems , 2000 .

[159]  W. M. Gorman.  ON A CLASS OF PREFERENCE FIELDS , 1961 .

[160]  Kenneth J. Arrow,et al.  Exposition of the theory of choice under uncertainty , 1966, Synthese.

[161]  R. Hall.  Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence , 1978, Journal of Political Economy.

[162]  Joel L. Horowitz,et al.  Binary Response Models: Logits, Probits and Semiparametrics , 2001 .

[163]  H. Varian.  Revealed Preference , 2006 .

[164]  Gary S. Becker,et al.  Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology , 1976 .

[165]  F. Y. Edgeworth.  Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences , 2007 .

[166]  C. Plott.  psychology and economics , 1990 .

[167]  Edmond Malinvaud,et al.  CAPITAL ACCUMULATION AND EFFICIENT ALLOCATION OF RESOURCES , 1953 .

[168]  Steven T. Berry,et al.  Automobile Prices in Market Equilibrium , 1995 .

[169]  G. Loewenstein.  Out of control: Visceral influences on behavior , 1996 .

[170]  Suresh M. Sundaresan,et al.  Intertemporally Dependent Preferences and the Volatility of Consumption and Wealth , 1989 .

[171]  P. Samuelson.  Consumption Theory in Terms of Revealed Preference , 1948 .

[172]  S. Afriat.  THE CONSTRUCTION OF UTILITY FUNCTIONS FROM EXPENDITURE DATA , 1967 .

[173]  Kevin D. Hoover,et al.  THE NEW CLASSICAL MACROECONOMICS , 1990 .

[174]  Kiho Yoon,et al.  The Modified Vickrey Double Auction , 2001, J. Econ. Theory.

[175]  H. Gintis,et al.  A Cooperative Species: Human Reciprocity and Its Evolution , 2011 .

[176]  D. Conniffe.  GENERATING GLOBALLY REGULAR INDIRECT UTILITY FUNCTIONS , 2004 .

[177]  Arthur Lewbel,et al.  Aggregation with Log-Linear Models , 1992 .

[178]  W. M. Gorman.  Community Preference Fields , 1953 .

[179]  J. Hausman.  The Econometrics of Nonlinear Budget Sets , 1985, Annual Review of Economics.

[180]  C. Plott,et al.  Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments , 1997 .

[181]  Louis Leon Thurstone,et al.  The indifference function. , 1931 .

[182]  André de Palma,et al.  Discrete Choice Theory of Product Differentiation , 1995 .

[183]  D. McFadden,et al.  MIXED MNL MODELS FOR DISCRETE RESPONSE , 2000 .

[184]  P. Chattopadhyay,et al.  Value and Capital , 1982 .

[185]  O. Attanasio,et al.  Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption , 2007 .

[186]  J. Kagan,et al.  Rational choice in an uncertain world , 1988 .

[187]  Stefano Zamagni,et al.  The economics of altruism , 1995 .

[188]  D. McFadden.  Conditional logit analysis of qualitative choice behavior , 1972 .

[189]  M. Ridley.  The Origins of Virtue , 1996 .

[190]  D. Jorgenson,et al.  Transcendental Logarithmic Utility Functions , 1975 .

[191]  L. Taylor.  Estimation of Theoretically Plausible Demand Functions from U.S. Consumer Expenditure Survey Data , 2009 .

[192]  O. Johansson-Stenman,et al.  SELF IMAGE AND CHOICE EXPERIMENTS: HYPOTHETICAL AND ACTUAL WILLINGNESS TO PAY , 2003 .

[193]  N. Bown,et al.  The lure of choice , 2003 .

[194]  D. Kahneman,et al.  Patients' memories of painful medical treatments: real-time and retrospective evaluations of two minimally invasive procedures , 1996, Pain.

[195]  H. D. Block,et al.  Random Orderings and Stochastic Theories of Responses (1960) , 1959 .

[196]  Paul A. Samuelson,et al.  Altruism as a problem involving group versus individual selection in economics and biology , 1993 .

[197]  H. Varian.  The Nonparametric Approach to Demand Analysis , 1982 .

[198]  D. Conniffe.  A Note on Generating Globally Regular Indirect Utility Functions , 2007 .

[199]  Zvi Griliches,et al.  On an Index of Quality Change , 1961 .

[200]  M. Browning.  A Simple Nonadditive Preference Structure for Models of Household Behavior over Time , 1991, Journal of Political Economy.

[201]  D. Kahneman,et al.  Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias , 1991 .

[202]  Jonathan D. Cohen,et al.  The Neural Basis of Economic Decision-Making in the Ultimatum Game , 2003, Science.

[203]  Matthew D. Lieberman,et al.  Why rejection hurts: a common neural alarm system for physical and social pain , 2004, Trends in Cognitive Sciences.

[204]  Fabio Trojani,et al.  Semiparametric Regression for the Applied Econometrician , 2006 .

[205]  J. Muellbauer,et al.  Economics and consumer behavior , 1980 .

[206]  Kenneth J. Arrow,et al.  Preference, production, and capital: On the integrability of demand functions , 1989 .