The lasting influence of experiences: How memorable consumption shapes well-being and decision-making

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Challenging the traditional view of consumption as an isolated, immediate event, Stefania Minardi of HEC Paris and Andrei Savochkin of Bocconi University's Department of Decision Sciences explore the idea that experiences can create lasting mental imprints that affect future well-being, and that this effect is taken into account when people make current decisions about whether to go for certain experiences or purchase goods or services.

In their recent paper, "Time for Memorable Consumption," published in Games and Economic Behavior, they seek to incorporate this idea into the way economic decision-making is understood and modeled. By integrating insights from psychology with economic theory, the authors provide a new quantitative framework to capture how "memorable consumption" shapes long-term satisfaction and decision patterns.

What makes an experience 'memorable?'

Savochkin and Minardi define a memorable experience as one that leaves a lasting impact either positive or negative on subjective well-being, extending beyond the moment of consumption itself, such as a wedding, a significant career achievement, or a traumatic incident. These experiences differ from routine, everyday consumption because they linger in memory and contribute to well-being in peculiar ways.

Memorable experiences, they argue, are those that people continue to "re-consume" mentally, reliving key elements that keep their influence alive. One psychological insight that the authors incorporate into their theory is the "peak-end rule," which describes the observation that people tend to remember the most intense (peak) and final moments of an experience, with little regard for its actual duration.

Modeling memorability

To capture this effect of memorability, Minardi and Savochkin propose a mathematical model that accounts for both the immediate utility of an experience and the ongoing utility derived from its memory. In their framework, consumption choices are influenced not only by direct material benefits but also by the "memorable effect" that certain experiences hold.

Their model separates "moment utility," the immediate pleasure or discomfort felt during an experience, from "remembered utility," the satisfaction or regret experienced in recalling the event. The authors stress that memorability is subjective, meaning that a given experience may be memorable for one person but not for another.

Practical applications

Minardi and Savochkin apply their model to two specific economic settings to illustrate its real-world relevance:

1. When individuals make risky choices, memories of past positive or negative outcomes influence their willingness to take further risks. The paper shows that this concern may be particularly important for shaping managerial incentives. Without taking this into regard, managers may be too conservative and not pursue mildly risky projects that are profitable for the company (and also beneficial for the managers themselves) or, depending on the history of past projects, may take excessive risks at the expense of the company.

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2. The model also sheds light on savings behavior over a person's life cycle. Memories of past consumption influence current saving choices, which can explain observed inconsistencies like "excess sensitivity" to income changes. For instance, a memorable vacation could lead someone to save more or less in anticipation of a similar future experience, depending on how they felt about the expense and satisfaction afterward. In other words, younger people's attitude toward spending more and saving less might be considered a way to invest in non-financial assets like gathering gratifying memories.

These applications reveal how memory-driven consumption choices deviate from traditional models, where choices are assumed to be based solely on present and future material outcomes. By incorporating memorable consumption, Minardi and Savochkin's model can better capture the nuanced ways in which past experiences shape current economic behavior.

More information: Stefania Minardi et al, Time for memorable consumption, Games and Economic Behavior (2024). DOI: 10.1016/j.geb.2024.09.010

Provided by Bocconi University