Author(s): Anonymous
Looking for co-authors: Yes { message_status }
This is an open research idea! Claim (10 points)
Major depressions (which involves a decrease in ability to enjoy life/utility) often follow significant bad events. It indicates that memories affect current preferences. What are the implication of incorporating past utility into preferences? Let's assume that individual's utility depends both on expectations and on memories.
One potential specification is that in each period $t$ an individual is maximizing the following function by choosing a consumption function $c()$:
$$V(t)=u(c(t))+E\int_{-\infty}^{\infty} d(t-\tau) V(\tau)d\tau$$
In this equation $d()$ is a discounting function (for example, $\exp(-(t-\tau)^2)$) and $u()$ is some instantaneous payoff function.
The discrete case analogue:
$$V_t=u(c_t)+\sum_{s=1}^T d_sV_s,t=1,2,..T$$
Or in more general case with utility aggregator $W()$:
$$V(t)=W(u(c(t)),E\int_{-\infty}^{\infty} d(t-\tau) V(\tau)d\tau)$$
The interaction between memories and current life satisfaction can affect welfare calculus of misery-reducing interventions if they not only can make people happier now but also happier for the rest of their lives. It might also have implications for intergenerational transfers (government-funded gap years for youth?). Preliminary finding: If no aggregator, these preferences are equivalent to a discounted sum of utilities with non-exponential discounting.
Published: 2022-11-17 19:40:43 PT
Stage: Research Idea
Fields: Microeconomics
Research Group(s): Playground
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Versions: v1 (11/17/2022)