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Cardinalism pp 249-288 | Cite as

Generic Utility Theory: Explanatory Model, Behavioral Hypotheses, Empirical Evidence

Chapter
Part of the Theory and Decision Library book series (TDLA, volume 19)

Abstract

This is a fundamental, theoretical and experimental, inquiry into the nature of preferences expressed by an individual for the purpose of normative decision analysis. The generic utility theory axiomatizes choice among simple gambles and represents the strength of preference relation on the space of outcomes and probabilities X × P in terms of a cardinal utility function u. The theory enables us (i) to connect several behavioral phenomena with new necessary conditions for the multiplicative models, (ii) to obtain a general characterization of risk attitude which elucidates the restrictions within the expected utility theory, and (iii) to establish a link between the neo-cardinal and neo-Bernoullian interpretations of a cardinal utility function u on X. Furthermore, the theory provides a framework for the experimental measurement, for 54 subjects, of u on X × P, and the components of its multiplicative decomposition u(x, p) = v(x)r(p), the value function v and the risk function r. Their shapes confirm some of the anticipated as well as several novel behavioral hypotheses. The conclusions aim at crystallizing the empirical foundations for (i) nonlinear (in probability) utility models, and (ii) filters of probability-induced biases in the measurements of cardinal utility functions for the expected utility models.

Keywords

Utility Function Risk Function Utility Theory Risk Attitude Prospect Theory 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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© Springer Science+Business Media Dordrecht 1994

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