Utility Perception in System Dynamics Models

Utility perceived by individuals is believed to be different from the utility experienced by that individual. System dynamicists implicitly categorize this phenomenon as a form of bounded rationality and traditionally employ a simple smoothing function to capture it. We challenge this generalization by testing it against an alternative formulation of utility perception that is suggested by modern theories of behavioral economics. In particular, the traditional smoothing formulation is compared with the peak-end rule in a simple theoretical model as well as in a medium-size model of electronic health record implementation. Experimentation with the models reveals that the way utility perception is formulated is important and might affect behavior and policy implications of system dynamics models.