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First, this paper introduces and axiomatizes range-dependent utility as a new conceptual framework for decision making under risk. It is a simple and well-defined generalization of expected utility theory in which utility depends on the range of lottery outcomes. Second, a special case of this framework is proposed for prediction. It is based on applying a single utility function (decision utility) to every normalized lottery range. The resultant decision utility model predicts well-known expected utility paradoxes without recourse to probability weighting. Necessary and sufficient conditions for the model to satisfy monotonicity with respect to first-order stochastic dominance are identified. The typical decision utility function, which is confirmed by both experimental data and normative considerations, is S shaped. History: Accepted by Manel Baucells, decision analysis. Funding: The first author acknowledges financial support by the Narodowe Centrum Nauki (National Science Center, Poland) [Grant KAE/NCN/2012/07/N/HD4/00272]. Keywords: range-frequency model * expected utility * certainty equivalent * Allais paradox * probability weighting * Stochastic dominance violations, 1. Introduction Many restaurants use extremely expensive dishes as decoys. One probably will not buy such a dish but will perceive other dishes a little cheaper by comparison. This example [...]

We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. We show that for nonexpected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving [...]

Insurance as a financial instrument has been used for a long time. The dramatic increase in competition within the insurance sector (in terms of providers coupled with awareness for the need for insurance) has concomitantly resulted in more policy options being available in the market. The insurance seller needs to know the buyer's preference for an insurance product accurately. Based on such multi-criterion decision-making, we use a logarithmic goal programming method to develop a linear utility model. The model is then used to develop a ready reckoner for policies that will aid investors in comparing them across various attributes. Journal of the Operational Research Society (2010) 61, 585-593. doi: 10.1057/jors.2009.26 Published online 25 March 2009 Keywords: finance; mathematical programming; utility theory

We study the critical opinions of expert movie reviewers as an item response problem. Building on earlier 'unfolding' models, we develop a framework that models an individual's decision to approve or disapprove of an item. Using this approach, we are able to recover the locations of movies and ideal points of critics in the same multidimensional space. We demonstrate that a three-dimensional model captures much of the variation in critical opinions. The first dimension signifies movie 'quality' while the other two connote the nature and subject matter of the films. We then demonstrate that the dimensions uncovered from our 'utility threshold model' are statistically significant predictors of a movie's success, and are particularly useful in predicting the success of independent films. KEY WORDS: Film; Ideal points; Utility threshold model.

Content adaptation is an important issue of multimedia frameworks in order to achieve universal multimedia access (UMA), i.e., to enable consumption of multimedia content independently of the given resource limitations, terminal capabilities, and user preferences. The digital item adaptation (DIA) standard, one of the core specifications of the MPEG-21 framework, supports content adaptation considering a wide range of networks, devices, and user preferences. Most adaptive multimedia frameworks targeting the UMA vision do not consider utility aspects in their adaptation decisions. This paper focuses on a generic semantic-based audio--visual utility model for DIA that aims to enhance the multimedia experience for the user. Our proposed model is able to take the semantics and the perceptual features of the content as well as the users' specific utility aspects into account. Based on a detailed analysis of these constraints, we will show how the model reacts on individual input data. For choosing the best adaptation decision considering resource limitations on client and server sides as well as network characteristics, we evaluate four algorithms for performing this adaptation decision taking task. We will discuss results according to some use case scenarios. Index Terms--Adaptation decision taking, optimization problem, recommender system, semantic quality (SQ), universal multimedia access (UMA), universal multimedia experience (UME), utility model.

The application of the utility theory for the multi-objective optimization of evolutionary computations, to schedule the preventive maintenance of aircraft, is described.

Programme budgeting and marginal analysis (PBMA) is becoming an increasingly popular tool in setting health service priorities. This paper presents a novel multi-attribute utility (MAU) approach to setting health service priorities using PBMA. This approach includes identifying the attributes of the MAU function; describing and scaling attributes; quantifying trade-offs between attributes; and combining single conditional utility functions into the MAU function. We illustrate the MAU approach using a PBMA case study in mental health services from the Community Health Sector in metropolitan South Australia. Keywords: Priority setting; Programme budgeting; Marginal analysis; Decision analysis; Multi-attribute utility theory; Mental health; Australia

Application of utility theory to determine value of time for creating multiclass multicriteria equilibrium for transportation of goods is described.

A Mexican case study on control of goods transport flow by induction of route choice, using utility theory, is presented.

A study on forecasting of transport demand and travel behavior of trip chain's transport system users, using utility theory, is analyzed.

A study uses utility theory to examine the newsvendor problem. Several utility function parameters are considered in the study.

Deviating from the conventional methods of measurement of poverty in developing countries using income or consumption, the measurement of poverty using criteria like utility and welfare, is discussed.

An approach to study the economic problems on the basis of a utility function, using recursive economic models is described. The model is used to modify the dynamic programming with Recursive utility and optimal growth, allowing for both bounded and unbounded returns.

The study conducted presents that for a general class of preferences, a separation of a key component of tastes, the utility function, from the other components of the representation is possible only if the decision maker's preference satisfy a mild but not completely innocuous conditions, called 'certainty independence'. The study outlines the axiomatic characterization of the preferences that obtain such separation, which are a subset of the biseperable preferences.

Extension of the concept of multi-attribute auctions to allow for configurable offers along with its usefulness for suppliers in specifying the bids is focused. The analysis of the winner determination problems occurring in case of multiple sourcing is also discussed.

Conjoint analysis is proposed to examine the degree of loss of average customer's utility by product standards. The results indicated that energy efficiency standards for refrigerators increased customer utility under imperfect choices.

A methodology for building a non-additive utility function to represent both the positive and negative interactions between criteria as expressed by the Decision Maker's utility function is proposed. However, as the number of parameters and reference alternatives increase, alternative methodologies can be employed for better results.

A model for portfolio optimization extending the classical Markowitz mean-variance model is projected. A hierarchy of objectives is formulated, which decomposes risk and return into five sub-objectives allowing individual investors preferences to be taken into account.

The magnitudes of relative prudence and relative risk aversion are characterized in terms of the mean-standard, two-parameter approach, which is compared and contrasted with the expected-utility approach.

In mathematical economics, individual demand is qualified using Slutsky relations. A generalization of Slutsky relations is done using utility functions.

The comparative statics of optimal decisions under uncertainty when preferences are represented by two moments, mean-variance utility functions are analyzed. Stronger concepts are needed to determine comparative static effects of changes in background risks.

Byline: Domenico Menicucci (1) Keywords: Multi-dimensional screening; multi-object auctions; bundling Abstract: We design the revenue-maximizing auction for two objects when each buyer has bi-dimensional private information and a superadditive utility function (i.e., a synergy is generated if a buyer wins both goods). In this setting the seller is likely to allocate the objects inefficiently with respect to an environment with no synergies (see Armstrong, RES (2000)). In particular, the objects may be bundled too rarely or a buyer may win the bundle even though her valuations for the goods are weakly dominated by the values of another buyer. Author Affiliation: (1) Dipartimento di Matematica per le Decisioni, Universita degli Studi di Firenze, Italy Article note: Received: 29 October 2001, Accepted: 29 October 2002, JEL Classification: This paper has been written while the author was a member of the Dipartimento di Statistica e Matematica Applicata alle Scienze Umane 'Diego De Castro', Universita degli Studi di Torino, Italy. Valuable comments and suggestions were provided by Antonio Cabrales, Massimo Marinacci, three anonymous referees and, especially, by Mark Armstrong. The usual disclaimer applies.

The article examines a new form of utility function that has parameters dependent on initial wealth, unlike conventional utility functions that rely on definitions of final wealth. Discussion includes exponential and quadratic utility functions with robust risky assets and decreasing risk aversion.

Risk attitudes may depend on time preferences and emotional reactions to wealth.

The effects of the empirical performance of two brand choice models - probabilistic and random utility of state dependence are evaluated in accurately tracking and predicting brand choices.

Byline: Quirino Paris (1), Michael R. Caputo (1) Keywords: Keywords:amoney-goods models, weak separability, Slutsky matrix, comparative statics.; JEL-classification: D11, E41. Abstract: The introduction of real-cash balances into the neoclassical model of the consumer wrecks havoc, in general, on the empirically observable refutable comparative statics properties of the model. We provide the most general solution of this problem to date by deriving a symmetric and negative semidefinite generalized Slutsky matrix that is empirically observable and which contains all other such comparative statics results as a special case. In addition, we clarify and correct two aspects of Samuelson and Sato's (1984) treatment of this problem. Author Affiliation: (1) Department of Agricultural and Resource Economics, University of California, One Shields Avenue, Davis, CA 95616-85121, USA (e-mails: paris@primal.ucdavis.edu caputo@primal.ucdavis.edu), US Article note: Received March 9, 2001 revised version received September 3, 2001

Empirical results of utility theory, which is used to examine solutions to road-use pricing, are presented.

The problem of representing an incomplete preference relation by means of a vector valued utility function is evaluated. The results extrapolate classical utility representation theorems of the theory of individual choice and provide mode to develop a consumer theory, which realistically allows individuals to exhibits some indecisiveness on occasion.

Byline: Monique Florenzano (1), Emma Moreno-Garcia (2) Keywords: JEL classification: D59, D49, D00, D11; Key words: Linear utilities, indirect utility function, Walrasian equilibrium, atomless economies Abstract: The purpose of this paper is to study how the equilibrium prices vary with respect to the initial endowments in a linear exchange economy with a continuum of agents. We first state the model and give conditions of an increasing strength for existence, uniqueness and continuity of equilibrium prices. Then, if we restrict ourselves to economies with essentially bounded initial endowments and if we assume that there is, from the point of view of preferences, only a finite number of types of agents, we show that, on an open dense subset of the space of initial endowments, the equilibrium price vector is an infinitely differentiable function of the initial endowments. The proof of this claim is based on a formula allowing to compute the equilibrium price vector around a so-called 'regular' endowment where it is known. Author Affiliation: (1) CNRS-CERMSEM, Universite de Paris 1, Boulevard de l'Hopital 112, 75647 Paris Cedex 13, France, FR (2) Departamento de Economia e Historia Economica, Facultad de Economia y Empresa, Universidad de Salamanca, Edificio F.E.S. Campus Miguel de Unamuno, 37007 Salamanca, Spain (e-mail: emmam@usal.es), ES

This article examines the historiographical misunderstandings of the methodology employed by economist Vilfredo Pareto. Issues include the mix of ordinalist-operationalist theories in neoclassical economics in modern choice theory, and the ability to construct economic theories without assuming a cardinal utility function.

Byline: Richard A. Chechile (1), R. Duncan Luce (2) Keywords: generic utility theory; subjective equivalence of gambles; context-dependent utility scaling Abstract: Chechile and Cooke (1997) experimentally tested a broad class of utility models subsumed under the Miyamoto (1988, 1992) generic utility theory. The Chechile and Cooke study required participants to match on each trial, a fully specified reference gamble to a partially specified comparison gamble by adjusting the probability of a win on the comparison gamble. The Chechile and Cooke experiment, however, contained a subset of trials which were intrinsically unmatchable. In such cases, the participants could only give an extreme probability (either 0 or 1). In this paper, those extreme trials were omitted and the results from the experiment reanalyzed. Despite the mismatch problem, the conclusions of the Chechile and Cooke experiment were again supported. For nine implementations of generic utility there is model failure due to the systematic variation of a parameter that should be a constant. Author Affiliation: (1) Tufts University, Medford, Massachusetts (2) University of California, Irvine Article History: Registration Date: 28/09/2004

Byline: Christian S. Pedersen (1), Stephen E. Satchell (1) Keywords: inequality; risk; utility Abstract: Recalling the class of risk measures introduced by Stone [1973], the authors survey measures from different academic disciplines--including psychology, operations research, management science, economics, and finance--that have been introduced since 1973. We introduce a general class of risk measures that extends Stone's class to include these new measures. Finally, we give four axioms that describe necessary attributes of a good financial risk measure and show which of the measures surveyed satisfy these. We demonstrate that all measures that satisfy our axioms, as well as those that do not but are commonly used in finance, belong to our new generalized class. Author Affiliation: (1) Trinity College, Cambridge University, Cambridge, U.K, CB2 ITQ Article History: Registration Date: 13/10/2004

Simulation techniques for high dimensional sensitivity analysis of the weights of multi-criteria decision models are studied. The simulation approach allows concurrent changes of the weights and yields results that can be easily studied statistically to help in understanding multi-criteria model proposals. The simulation techniques that were used can be employed in actual decision processes.

Byline: Mattias Lundback (1) Keywords: regulation; health care; principal-agent; hospital; agency Abstract: This article addresses the combined problem of imperfect agency and asymmetric information in the regulation of hospitals by modeling the physician as a utility maximizer with both the utility of patients and profit of the hospital as arguments in his or her utility function. The article concludes that optimal regulation of hospitals is based on three important factors: the doctor's marginal rate of substitution between profit of the hospital and utility of the patients, moral hazard in the relationship between the regulator and the hospital, and adverse selection in the same relation. Author Affiliation: (1) CEFOS, Goteborg University, Pilgatan 19A, S - 411 22, Goteborg, Sweden Article History: Registration Date: 29/09/2004

An extended version of the optimum maintenance-strategy decision-model for 2-unit standby systems introduces a Gamma repair-time distribution with shape-parameter 2, and tackles the conflicting needs of system availability and cost through maximization of a multi-attribute utility function. The unit failure and repair rates are assumed to be constant, and a Bayes approach models the uncertainty of the Gamma scale-parameter. A numerical application with sensitivity analysis, demonstrates the usefulness of the model. The optimum solution is assumed to occur at the maximum mean utility.

Subjective probability in the purchase decisionmaking of consumers can be compatible with the existence of risk choices which are not necessarily linked to utility preference risks. Bayesian rationality is applied to hybrid subjective/objective uncertainty situations, such as roulette lotteries. The role of beliefs is a component in modeling subjective choice.

The choice of outcome measure in cost-utility analysis has been a matter of concern. In particular the theoretical properties of quality-adjusted life-years (QALYs) and healthy-years equivalents (HYEs) have been debated. In this paper the underlying preference assumptions of QALYs and HYEs are illustrated graphically. For QALYs the assumptions of mutual utility independence, constant proportional trade-off, and risk neutrality are explained and illustrated. Mutual utility independence is shown to guarantee that the quality weight with the standard gamble method is independent of the number of years in the health state and constant proportional trade-off is shown to guarantee that the quality weight with the time-trade-off method is independent of the number of years in the health state. Together these two assumptions leads to a utility function over life-years that exhibits constant proportional risk posture, which is the basis for the risk-adjusted QALY model. The more commonly used risk-neutral QALY model is shown to be a valid cardinal utility function if risk neutrality over life-years holds for all health states. For HYEs to be a valid cardinal utility function the somewhat less restrictive assumption of risk neutrality over life-years in full health has to be made. It is also shown graphically that the proposed two-stage procedure to measure HYEs in theory gives the same result as directly using the time-trade-off method. Finally, it is shown that by estimating the certainty-equivalent number of HYEs it is possible in theory to obtain a measure that will always rank risky health profiles according to individual preferences. It is concluded that further empirical work should be undertaken to test the ranking properties of the different measures. Key words - quality-adjusted life-years, healthy-years equivalents, utility theory, individual preferences

A study was conducted on the use of continuous risk utility assessment (CRUA) in medical decision-making. CRUA was used in the treatment decision confronted by a patient suffering from advanced osteoarthritis of the hip. A microcomputer-based implementation of the CRUA protocol was developed. The feasibility of implementing CRUA in a clinical setting was proved. Results showed that CRUA can be a valuable tool in medical decision-making, although minor problems concerning time and personnel need to be addressed.

Utility theory has been frequently applied in the analyses of the outbreak of war. The present study extends the application of utility theory to conflict duration. The authors consider how the perceived utility of continuing conflict changes while conflicts are under way, and posit that conflicts end when the utility of continuing is less than the utility of surrender. Predictions developed from the theory are tested, using hazard models, on duration data from actual wars, strikes, riots, and family arguments. Consistent with utility theory, the likelihood of wars and strikes ending is found to decrease while they are under way, exhibiting a tendency for these conflicts to become entrenched. In sharp contrast to this, but consistent with utility theory, riots and family arguments are more likely to end the longer they last. Size of conflict and dispute issue are shown to effect duration in some circumstances. The results offer a way of explaining how conflicts between 'rational' organizations become entrenched and resistant to resolution. Implications for efforts to reduce conflict duration are discussed.