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The domain and interpretation of utility functions: An exploration

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  • Marc Le Menestrel

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  • Luk N. 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.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 576.

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Date of creation: Oct 2001
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Handle: RePEc:upf:upfgen:576

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Web page: http://www.econ.upf.edu/

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Keywords: Utility; representaion; interpretation; preference reversal;

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  1. 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.
  2. Amartya Sen, 1996. "Maximization and the Act of Choice," Harvard Institute of Economic Research Working Papers 1766, Harvard - Institute of Economic Research.
  3. Marc Le Menestrel, 2001. "A Process Approach to the Utility for Gambling," Theory and Decision, Springer, vol. 50(3), pages 249-262, May.
  4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  5. 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.
  6. Chris Starmer,, . "Experiments in Economics ... (should we trust the dismal scientists in white coats?)," University of East Anglia Discussion Papers in Economics _002, School of Economics, University of East Anglia, Norwich, UK..
  7. Peter Fishburn & Peter Wakker, 1995. "The Invention of the Independence Condition for Preferences," Management Science, INFORMS, vol. 41(7), pages 1130-1144, July.
  8. Robert J. Aumann, 1998. "Common Priors: A Reply to Gul," Econometrica, Econometric Society, vol. 66(4), pages 929-938, July.
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Cited by:
  1. 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.
  2. repec:hal:wpaper:ijn_00000656 is not listed on IDEAS
  3. sacha bourgeois-gironde & Raphaël Giraud, 2005. "Accounting for Framing-Effects - an informational approach to intensionality in the Bolker-Jeffrey decision model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) ijn_00000656, HAL.
  4. Sacha Bourgeois-Gironde & Raphaël Giraud, 2009. "Framing Effects as Violations of Extensionality," Post-Print ijn_00432662, HAL.
  5. Marc Le Menestrel & Luk N. Van Wassenhove, 2002. "Ethics outside, within or beyond OR models," Economics Working Papers 622, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
  6. 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.
  7. 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.
  8. Marc Le Menestrel, 2003. "A one-shot Prisoners’ Dilemma with procedural utility," Economics Working Papers 819, Department of Economics and Business, Universitat Pompeu Fabra.

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