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The domain and interpretation of utility functions: An exploration

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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File URL: http://www.econ.upf.edu/docs/papers/downloads/576.pdf
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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
Contact details of provider: Web page: http://www.econ.upf.edu/

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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. Marc Le Menestrel, 2001. "A Process Approach to the Utility for Gambling," Theory and Decision, Springer, vol. 50(3), pages 249-262, May.
  3. Chris Starmer, 1999. "Experiments in economics: should we trust the dismal scientists in white coats?," Journal of Economic Methodology, Taylor & Francis Journals, vol. 6(1), pages 1-30.
  4. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
  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. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  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. 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.
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