2
$\begingroup$

DISCLAIMER: This could very well be all bogus, I'm talking about my intuition as a beginner/intermediate economics student, you have been warned.

I got the feeling agents do not just maximize utility but minimize disutility as well. Now my understanding is that from the convexity assumption follows that those problems would have the same optimum. But I think it could very well be the case that the utility function does not at all look like the disutility function (also different variables) and optimum of those two functions need not be unique (Am I with the duality gap on the right track?).

If this at all a valid intuition I would appreciate some pointers to empirical studies that examines utility and disutiliy, or some theories that incorporate the notion of disutiliy (not just as an inverse of utility) into preferences.

P.S. I got the idea while reading about The Paradox of Choice from Barry Schwartz (more choices could lead to confusion and in my interpretation disutiliy)

| improve this question | |
$\endgroup$
  • 1
    $\begingroup$ What do you think you mean by "utility" and "disutility"? What does it mean to you to talk about maximising the former and minimising the latter? $\endgroup$ – 410 gone Oct 18 '16 at 7:31
2
$\begingroup$

I believe what you're getting at is a concept in economics called "Loss Aversion". It has been used quite extensively in recent economic research, especially in behavioral economics and finance. Another important key word here is "Prospect Theory", which encompasses loss aversion as well.

The basic idea is that people suffer more from a loss of x\$ than they enjoy a gain of x\$ compared to a reference point. The utility function has a different (smaller in absolute value) slope when moving in a positive direction from the reference point than when moving in a negative direction. This is illustrated by the graph below (source: https://upload.wikimedia.org/wikipedia/commons/4/4e/Valuefun.jpg).

enter image description here

Under these conditions, utility and disutility are different. Otherwise, maximizing untility or minimizing disutility is the same, as you mentioned.

This insight goes back to Amos Tversky and Daniel Kahneman.Kahneman received the Nobel Prize in Economics in 2002 for this work.

A summary of the most important literature can be found for example here: http://loss-aversion.behaviouralfinance.net/

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.