Paper #576

Títol:

The domain and interpretation of utility functions: An exploration

Autors:

Marc Le Menestrel i Luk N. Van Wassenhove

Data:

Octubre 2001

Resum:

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.

Paraules clau:

Utility, representaion, interpretation, preference reversal

Codis JEL:

A12, D00, D81

Àrea de Recerca:

Economia de l'Empresa i Organització Industrial

Publicat a:

Theory and Decision, 51, (2001)

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