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The Domain and Interpretation of Utility Functions: An Exploration

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  • Marc Le Menestrel

    ()

  • Luk Van Wassenhove

Abstract

This paper proposes an exploration of the methodology of utility functions that distinguishes interpretation from representation. While representation univocally assigns numbers to the entities of the domain of utility functions, interpretation relates these entities with empirically observable objects of choice. This allows us to make explicit the standard interpretation of utility functions which assumes that two objects have the same utility if and only if the individual is indifferent among them. We explore the underlying assumptions of such an hypothesis and propose a non-standard interpretation according to which objects of choice have a well-defined utility although individuals may vary in the way they treat these objects in a specific context. We provide examples of such a methodological approach that may explain some reversal of preferences and suggest possible mathematical formulations for further research. Copyright Kluwer Academic Publishers 2001

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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 51 (2001)
Issue (Month): 2 (December)
Pages: 329-349

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Handle: RePEc:kap:theord:v:51:y:2001:i:2:p:329-349

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Web page: http://www.springerlink.com/link.asp?id=100341

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Keywords: Utility; representation; interpretation; preference reversal;

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References

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  1. Robert J. Aumann, 1998. "Common Priors: A Reply to Gul," Econometrica, Econometric Society, vol. 66(4), pages 929-938, July.
  2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  3. Sen, A., 1996. "Maximisation and the Act of Choice," Papers 270, Banca Italia - Servizio di Studi.
  4. Marc Le Menestrel, 2001. "A process approach to the utility for gambling," Economics Working Papers 570, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Starmer, C., 1998. "Experiments in Economics...(Should We Trust the Dismal Scientists In White Coats?)," University of East Anglia Discussion Papers in Economics 9801, School of Economics, University of East Anglia, Norwich, UK..
  6. Peter Fishburn & Peter Wakker, 1995. "The Invention of the Independence Condition for Preferences," Management Science, INFORMS, vol. 41(7), pages 1130-1144, July.
  7. Fishburn, Peter C, 1989. " Retrospective on the Utility Theory of von Neumann and Morgenstern," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 127-57, June.
  8. Irwin, Julie R, et al, 1993. " Preference Reversals and the Measurement of Environmental Values," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 5-18, January.
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Citations

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Cited by:
  1. M. Le Menestrel, 2006. "A One-Shot Prisoners' Dilemma With Procedural Utility," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 655-668.
  2. Raphaël Giraud, 2005. "Anomalies de la théorie des préférences. Une interprétation et une proposition de formalisation," Revue économique, Presses de Sciences-Po, vol. 56(4), pages 829-854.
  3. Marc Le Menestrel, 2007. "The biased balance: Observation, formalism and interpretation of a dissymmetric measuring device," Economics Working Papers 1006, Department of Economics and Business, Universitat Pompeu Fabra.
  4. repec:hal:cesptp:ijn_00000656 is not listed on IDEAS
  5. Marc Le Menestrel & Bertrand Lemaire, 2002. "Additive utility with intransitive indifference and without independence: A homogeneous case," Economics Working Papers 628, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Le Menestrel, Marc & Van Wassenhove, Luk N., 2004. "Ethics outside, within, or beyond OR models?," European Journal of Operational Research, Elsevier, vol. 153(2), pages 477-484, March.
  7. repec:hal:wpaper:ijn_00000656 is not listed on IDEAS
  8. Sacha Bourgeois-Gironde & Raphaël Giraud, 2009. "Framing effects as violations of extensionality," Theory and Decision, Springer, vol. 67(4), pages 385-404, October.

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