Date of Completion

9-25-2020

Degree Type

Honors Thesis

Discipline

Economics (ECON)

First Advisor

Dorothea Herreiner

Abstract

In economics, human decision-making models are based on the utility, or happiness, a person experiences from the choices they make. Individual happiness is closely tied to societal and global well-being, a common political and and research goal. Psychological studies on happiness show that people generally return to an average level of happiness after experiencing a significant positive or negative change in their life, a process known as the ``hedonic treadmill.'' Empirically, it is often difficult for people to predict the specific utility they will experience from a given choice, leading them to maintain constant preferences for only frequently experienced options. This study relies on recent utility models that describe the adaptive learning process observed in human behavior, where people become better over time at making accurate judgements for familiar choices. I study whether participants adhere to principles of an adaptive utility model in an economics lab experiment. Subjects rank many possible payoffs into four categories of desirability in repeated rounds, thereby determining thresholds of utility. The limitation of four categories forces participants to optimize how they distinguish between payoffs. Pairs of payoffs are randomly selected, and then the participant's ranking is used to determine which of the two payoffs is used for payment. Changing the frequency at which specific pairs are selected tests the rate of adaptation in participant rankings, thereby testing a core prediction of the model. Participants in the study adapt over the course of the game and get closer to the optimal strategy as they play. Results from this study suggest that people adapt typically only after several repeated rounds of information or after incurring a loss, and that receiving payoffs in one portion of their utility curve may result in adaptation in the rankings of both observed and unobserved payoffs with other amounts of utility.

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