The Domain and Interpretation of Utility Functions: An Exploration |
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Authors: | Le Menestrel Marc Van Wassenhove Luk |
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Institution: | (1) Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Vargas, 25-27, E-08005 Barcelona, Spain |
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Abstract: | 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.
This revised version was published online in June 2006 with corrections to the Cover Date. |
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Keywords: | Utility representation interpretation preference reversal |
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