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Utility function estimation: the entropy approach

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  • Andreia Dionisio
  • A. Heitor Reis

Abstract

The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between probability and utility through the notion of a utility density function. According to some authors [Soofi (1990), Abbas (2006a) (2006b), Sandow et al. (2006), Friedman and Sandow (2006), Darooneh (2006)] the maximum entropy utility solution embeds a large family of utility functions. In this paper we explore the maximum entropy principle to estimate the utility function of a risk averse decision maker.

Suggested Citation

  • Andreia Dionisio & A. Heitor Reis, 2007. "Utility function estimation: the entropy approach," Papers 0709.0591, arXiv.org.
  • Handle: RePEc:arx:papers:0709.0591
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    File URL: http://arxiv.org/pdf/0709.0591
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    1. Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics.
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