Challenging the traditional perspective that views consumption as an isolated and immediate event, Stefania Minardi from HEC Paris and Andrei Savochkin from Bocconi University’s Department of Decision Sciences delve into the idea that experiences can leave lasting mental imprints. They explore how these imprints affect future well-being and influence present decisions about engaging in experiences or purchasing goods and services. Their latest research paper, “Time for Memorable Consumption,” published in the journal Games and Economic Behavior, aims to integrate this concept into the economic decision-making framework. By merging insights from psychology with economic theories, the authors introduce a new quantitative model that illustrates how “memorable consumption” shapes long-term satisfaction and decision-making patterns.
The concept of a “memorable” experience is central to their theory. Savochkin and Minardi define it as an experience that has a durable positive or negative impact on a person’s subjective well-being, extending beyond the initial moment of consumption. Examples include significant events like weddings, notable career achievements, or traumatic incidents. These experiences differ from routine, everyday consumption because they linger in memory and uniquely affect well-being. Memorable experiences are those that individuals mentally revisit, reliving pivotal moments that maintain their influence over time. The researchers incorporated the “peak-end rule” in their model, suggesting that people tend to remember the most intense and final moments of an experience, often overlooking its duration.
Minardi and Savochkin have developed a mathematical model that considers both the immediate utility derived from an experience and the sustained utility gained from its memory to quantify the impact of memorability. This model suggests that the direct material benefits and the memorable effect of specific experiences influence consumption decisions. The model differentiates “moment utility”—the immediate pleasure or discomfort experienced during an event—from “remembered utility”—the satisfaction or regret experienced in recalling the event. The authors stress that memorability is subjective, meaning that what may be memorable for one person might not be for another.
The practical applications of their model are illustrated through two economic scenarios that demonstrate its real-world relevance. First, when individuals face risky decisions, memories of past outcomes—whether positive or negative—influence their willingness to take future risks. This insight is crucial for designing managerial incentives, suggesting that without consideration of past experiences, managers might either avoid moderately risky but profitable projects or engage in hazardous behaviours that could harm the company.
Another application of their model is understanding savings behaviour throughout an individual’s life cycle. The memory of past consumption, such as a memorable vacation, can influence current saving decisions. This explains observed behavioural inconsistencies like “excess sensitivity” to income changes. For instance, recollecting past enjoyment or regret about expenditure may lead someone to save more or less in anticipation of similar future experiences. This insight offers a new perspective on why younger people might spend more and save less, viewing such expenditures as investments in non-financial assets like enriching life experiences.
By incorporating memorable consumption into economic models, Minardi and Savochkin offer a nuanced understanding of how past experiences shape current economic behaviour. This approach expands the boundaries of economic theory by acknowledging the complex interplay between memory, knowledge, and decision-making. It enhances the applicability of economic models and provides a deeper insight into the psychological factors that drive consumption patterns. This innovative framework thus opens new avenues for research and practical economic and behavioural sciences applications.
More information: Stefania Minardi et al, Time for memorable consumption, Games and Economic Behavior. DOI: 10.1016/j.geb.2024.09.010
Journal information: Games and Economic Behavior Provided by Bocconi University