Do people always maximize their utility?

Taylor Berry, Honorbound

People choose what they believe gives them the most utility, but these decisions are often made without all the necessary information, or are meant to maximize short-term utility without factoring in long-term utility. As Charles Wheelan notes: “most of us make decisions using intuition or rules of thumb.”[1]When we lack important or accurate information, we often end up making the wrong decision for the right reason.

The Prisoners’ Dilemma highlights how lack of information hurts our ability to properly maximize our utility. In this famous thought experiment, two prisoners, A and B, are accused of the same crime and thrown in separate rooms for interrogation. Each crook is told that if neither of he talks, he will both get two years in prison, but if he betrays his partner, he will receive a lighter sentence and the other man will get a life-sentence. The catch is that if both criminals snitch on each other they will both get longer sentences. Neither knows how the other will respond. If prisoner A rats out prisoner B to the police, then it would be in prisoner B’s best interest to confess as well to get a lighter sentence than life. If prisoner A says nothing, then the best thing for prisoner B to do is to throw prisoner A under the bus. But prisoner B has no idea what prisoner A will do and will act based on how he assumes A will act. This assumption isn’t based on actual fact and ends up hurting B more than if he just knew what prisoner A was going to do.[2]

Consider a scenario where a family is trying to maximize its utility by buying a car to spend less money on public transportation. The family members figure that even though a car will cost a lot of money right now, they will save in the long run by spending less on public transportation. After they purchase the car and use it for a few months, they learn that their spending on transportation has not changed at all and they are spending the same amount on public transportation as on their gas. We often make decisions based on assumptions that go against reality. We try to maximize our utility, but are unable to do so because we jump to conclusions.

Additionally, people don’t always have the self-control to maximize their long-term utility versus their short-term utility. For example, a man wants to quit smoking, but he benefits from the short-term utility he gets from smoking a cigarette. He wants to give up smoking because he knows that the long-term costs outweigh the short-term gains, but he lacks the self-control to give up cigarettes. People who seem to minimize their utility sometimes just choose to maximize their short-term utility over their long-term utility. People always make decisions in an attempt to maximize their utility, but it isn’t always successful because it is based off assumptions, misinformation, or weakness of will that maximizes current utility versus total utility.

[1] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 26.

[2] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 44-45.

Image Citation: Red Mustang in a Field. Digital image. Cars.com. Accessed June 15, 2016. http://img.autobytel.com/car-reviews/autobytel/11694-good-looking-sports-cars/2016-Ford-Mustang-GT-burnout-red-tire-smoke.jpg.

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