Seminario 26/01 – Francisco Alcalá (IVIE y CEPR) – Remembered happiness, lingering utility, and the Epicurean homo oeconomicus

Abstract:

Consumption experiences generate enduring satisfaction (or dissatisfaction) that persists beyond the moment of consumption. This paper analyzes the rational behavior of individuals who anticipate this lasting impact and the cognitive limitations that shape memories–i.e, the peak-end rule, as documented by Daniel Kahneman and coauthors. The peak rule gives rise to non-smooth consumption trajectories characterized by periodic spikes (called celebrations), whereas the end rule implies a preference for moderate consumption that avoids satiation. These predictions stand in sharp contrast to core implications of standard consumption theory, most notably intertemporal consumption smoothing, and provide an explanation for phenomena such as the near-universal practice of periodic celebrations in which consumption expenditure substantially exceeds average levels and restraints on excessive indulgence and gluttony. From a normative perspective, the model’s prescriptions converge with Epicurean ethics, understood as the search for moderated and enduring pleasure. In doing so, the analysis helps bridge classical ethical thought about the good life with the economic analysis of utility maximization.