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The Domain and Interpretation of Utility Functions: An Exploration

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Author Info
Marc Le Menestrel ()
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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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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Related research
Keywords: Utility; representaion; interpretation; preference reversal;

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Find related papers by JEL classification:
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
D00 - Microeconomics - - General - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Starmer, Chris, 1999. "Experiments in Economics: Should We Trust the Dismal Scientists in White Coats?," Journal of Economic Methodology, Taylor and Francis Journals, vol. 6(1), pages 1-30, March.
    Other versions:
  2. 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.
  3. 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.
  4. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
    Other versions:
  5. Marc Le Menestrel, 2001. "A Process Approach to the Utility for Gambling," Economics Working Papers 570, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  7. 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:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. 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. [Downloadable!]
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