The Pearson system of utility functions
AbstractThis paper describes a parametric family of utility functions for decision analysis. The parameterization is obtained by embedding the HARA class in a four-parameter representation for the risk aversion function. The resulting utility functions have only four shapes: concave, convex, S-shaped, and reverse S-shaped. This makes the family suited for both expected utility and prospect theory. We also describe an alternative technique to estimate the four parameters from elicited utilities, which is simpler and easier to implement than standard fitting by minimization of the mean quadratic error.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Operational Research.
Volume (Year): 172 (2006)
Issue (Month): 2 (July)
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- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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