This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Pearson system of utility functions

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Marco LiCalzi (University of Venice)
Annamaria Sorato (University of Venice)

Additional information is available for the following registered author(s):

Abstract

This 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.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://129.3.20.41/eps/game/papers/0311/0311002.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by EconWPA in its series Game Theory and Information with number 0311002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 18 pages
Date of creation: 06 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpga:0311002

Note: Type of Document - pdf; prepared on Mac OsX; to print on A4 paper; pages: 18
Contact details of provider:
Web page: http://129.3.20.41

For technical questions regarding this item, or to correct its listing, contact: (EconWPA).

Related research
Keywords: coefficient of risk aversion; elicitation of preferences under risk; expected utility; HARA utility functions; Pearson system of distributions; prospect theory; probability weighting function; target- based decisions.;

Other versions of this item:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

This paper has been announced in the following NEP Reports:

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. Neilson, William S, 2002. " Comparative Risk Sensitivity with Reference-Dependent Preferences," Journal of Risk and Uncertainty, Springer, vol. 24(2), pages 131-42, March. [Downloadable!] (restricted)
  2. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  3. Neilson, William S & Stowe, Jill, 2002. " A Further Examination of Cumulative Prospect Theory Parameterizations," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 31-46, January. [Downloadable!] (restricted)
  4. Bell, David E & Fishburn, Peter C, 2000. " Utility Functions for Wealth," Journal of Risk and Uncertainty, Springer, vol. 20(1), pages 5-44, January. [Downloadable!] (restricted)
  5. Robert Bordley & Marco LiCalzi, 2000. "Decision analysis using targets instead of utility functions," Decisions in Economics and Finance, Springer, vol. 23(1), pages 53-74. [Downloadable!] (restricted)
  6. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  7. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249.
  8. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  9. Cass, David & Stiglitz, Joseph E., 1970. "The structure of investor preferences and asset returns, and separability in portfolio allocation: A contribution to the pure theory of mutual funds," Journal of Economic Theory, Elsevier, vol. 2(2), pages 122-160, June. [Downloadable!] (restricted)
  10. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
    Other versions:
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  12. Wakker, Peter & Tversky, Amos, 1993. " An Axiomatization of Cumulative Prospect Theory," Journal of Risk and Uncertainty, Springer, vol. 7(2), pages 147-75, October.
  13. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151. [Downloadable!] (restricted)
  14. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August. [Downloadable!] (restricted)
  15. Erio Castagnoli & Marco LiCalzi, 2005. "Expected utility without utility," Game Theory and Information 0508004, EconWPA. [Downloadable!]
  16. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June. [Downloadable!] (restricted)
Full references

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. Meyer, Jack, 2007. "Representing Risk Preferences in Expected Utility Based Decision Models," SCC-76 Meeting, March 15-17, 2007, Gulf Shores, Alabama 9380, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources. [Downloadable!]
  2. Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," The Economic and Social Review, Economic and Social Studies, vol. 38(3), pages 275–288. [Downloadable!]
  3. 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. [Downloadable!]
  4. Joost M.E. Pennings & Philip Garcia, 2009. "The informational content of the shape of utility functions: financial strategic behavior," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 83-90. [Downloadable!]
Statistics
Access and download statistics

Did you know? Cannot find something on IDEAS? Encourage the publisher to index it! Instructions.

This page was last updated on 2009-11-5.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.