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The Domain and interpretation of utility functions: an exploration

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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. The authors explore the underlying assumptions of such a 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. They 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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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2001/2001-89.pdf

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Copyright INSEAD. All rights reserved