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The Use of Distribution Functions to Represent Utility Functions

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  • Marvin H. Berhold

    (Georgia State University)

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    Abstract

    This paper considers the decision maker whose evaluation and consequent choice of actions is accomplished through the use of the expected utility hypothesis. In cases where the utility function is increasing with upper and lower bounds then the utility function can be characterized by a distribution function, and we can take advantage of the various properties of such functions as well as existing results with respect to such functions. Using these properties and results we can determine the certainty equivalents as a function of the parameters of the distribution function (utility function) and the parameters of the probability distribution on the uncertain payoff. The following cases are considered: (1) Gaussian distribution function and Gaussian probability distribution, (2) Exponential distribution function and exponential distribution and (3) Exponential distribution function and Gaussian probability distribution.

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    File URL: http://dx.doi.org/10.1287/mnsc.19.7.825
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 19 (1973)
    Issue (Month): 7 (March)
    Pages: 825-829

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    Handle: RePEc:inm:ormnsc:v:19:y:1973:i:7:p:825-829

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    Cited by:
    1. Marco LiCalzi & Annamaria Sorato, 2003. "The Pearson system of utility functions," Game Theory and Information 0311002, EconWPA.
    2. Ali Abbas, 2004. "Maximum Entropy Utility," Game Theory and Information 0403002, EconWPA.
    3. Wim Linden, 1981. "Using aptitude measurements for the optimal assignment of subjects to treatments with and without mastery scores," Psychometrika, Springer, vol. 46(3), pages 257-274, September.
    4. Marco LiCalzi, 2005. "A language for the construction of preferences under uncertainty," Game Theory and Information 0509002, EconWPA.
    5. Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," Economics, Finance and Accounting Department Working Paper Series n1780907, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.

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