The Pearson system of utility functions
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.
|Date of creation:||06 Nov 2003|
|Date of revision:|
|Note:||Type of Document - pdf; prepared on Mac OsX; to print on A4 paper; pages: 18|
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