Summary: A new framework integrates psychology and economics to show how memorable experiences influence long-term decision-making. Their model separates the immediate utility of consumption from the lasting “remembered utility” derived from impactful events, such as weddings or career achievements.
These memorable moments, shaped by the “peak-end rule,” continue to affect choices, such as risk-taking and saving, beyond the moment of consumption. The study highlights how memory-driven behavior deviates from traditional economic models, offering new insights into human decision-making.
Key Facts:
- Memorable experiences create lasting mental imprints that influence future choices.
- The model incorporates “moment utility” and “remembered utility” to capture these effects.
- Applications include explaining risk-taking behavior and life-cycle savings patterns.
Source: Bocconi University
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 puchase 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.
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 to spend more and save less might be considered a way to invest on 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.
About this memory and decision-making research news
Author: Weiwei Chen
Source: Bocconi University
Contact: Weiwei Chen – Bocconi University
Image: The image is credited to Neuroscience News
Original Research: Open access.
“Time for memorable consumption” by Stefania Minardi and Andrei Savochkin. Games and Economic Behavior
Abstract
Time for memorable consumption
A consumption event is memorable if the memory of the event affects well-being at times after the material consumption, as originally introduced by Gilboa et al. (2016).
Our main contribution is to develop an axiomatic foundation of memorable consumption in a dynamic setting.
Preferences are represented by the present value of the sum of utilities derived at each date from the current consumption and from recollecting the past.
Our model accommodates well-known phenomena in psychology, such as the peak-end rule, duration neglect, and adaptation trends.
We also provide foundations for a prominent special case of the representation with the Markovian property.
The model is illustrated with applications in two different contexts: risk-taking behavior in a principal-agent problem and life-cycle consumption-savings decisions.
