A Psychologically Plausible Goal-Based Utility Function

Introduction The notion of a utility function, that is to say a function that captures human preferences and thereby explains human choices, is widely used in many business-related fields. In economics, it plays a foundational role in the mathematical derivation of general equilibrium theory and often plays a role in macroeconomic policy models. In the decision sciences, it is central to rational decision models involving risk and time. In management and finance, it serves as an important underpinning to a wide range of models, such as those employed in agency theory and prospect theory. Within the informing sciences, the concept of utility is no less important. In Cohen's (1999) sender-channel-client model, the concept of utility is central to understanding why a sender chooses to inform and why a client chooses to be informed. In this context, utility can manifest itself in a number of ways. From an economic perspective, the value of being informed can be described as the marginal value of information for the task associated with the informing system. The greater the value of the information, the greater the contribution informing makes to the client's utility. Informing relationships may also exist, however, in contexts where marginal values cannot be calculated, or where they are irrelevant. Learning is often intrinsically motivated; we experience utility gains through the process of being informed, yet there is not necessarily an economic source that we can pinpoint to explain that utility. Neoclassical economic theory allows utility to include less tangible elements, such as personal sense of mastery, power, or the satisfaction of others (Simon, 1992). Incorporating such elements, however, makes the utility construct substantially less tractable for the purposes of generating formal economic theory. Neoclassical economic utility has two largely unresolved aspects that make its use particularly problematic in the informing context. Even in its simplest form, a single variable and one time period, numerous departures from apparently rational behavior as predicted by neoclassical utility functions have been observed in experimental settings. Henceforth, we refer to these as anomalies. Many of these anomalies (e.g., framing, priming) represent behaviors where subtle aspects of how a decision task is presented--not affecting the underlying decision itself--result in changes to observed client preferences. Obviously, better understanding how such anomalies arise is critical if effective informing is to take place, since the presentation of task information is an integral part of most informing systems. Even more troubling, from an informing perspective, is the degree to which learning is ignored in economic models of utility. Utility is presumed to guide our choices, yet we also know that our preferences may evolve as we gain expertise in a particular activity. Economists do posit a roll for changing tastes--although some (e.g., Becker, 1976) do their best to propose functions constructed so as to minimize the impact of such changes--but when our utility preferences change (e.g., as we gain expertise in performing a particular type of financial task), it is not convincing to assert that this change is solely a consequence of our changing taste for money. Even more to the point, how plausible is it to assume that preferences do not change as a consequence of the learning that invariably takes place over the course of an informing relationship? The purpose of the present paper is to synthesize existing research into an alternative formulation of the utility function that may serve to address some of the anomalies and inconsistencies common to many existing utility functions, particularly in the informing context. The paper begins by summarizing existing models of utility and then reviews key findings of the goal-setting literature. …