Utility maximization and melioration: Internalities in individual choice

Abstract

How do people go about choosing between alternatives in relatively simple settings? This study explores some of the variables that past work suggests may be relevant. Volunteer subjects worked for money in six procedures in which the probability of a payment from either of two alternatives was 1.0, but the rate of pay (i.e. the speed with which a payment was delivered or the size of the payment) interacted with the subjects recent allocation of choices, which we define as the ‘internalities’. Because of the internalities, choosing the currently more profitable alternative did not maximize total earnings. Subjects were more likely to fail to maximize when the interaction between present pay and past choices was spread over longer sequences of choices, or when the reward variable was the speed, rather than the value, of each payment. Subjects often disregarded the internalities and were instead guided by the current yields of the two alternatives, which is a frequently observed tendency, called ‘melioration’, in experiments on choices by animals. The tendency toward melioration was only partially counteracted by explicit instructions on how to maximize earnings. We discuss a theoretical framework for melioration that postulates both motivational and cognitive sources.