[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v33y1987i11p1367-1382.html
   My bibliography  Save this article

Lottery Dependent Utility

Author

Listed:
  • Joao L. Becker

    (Programa de Pos-Graduacao em Administracao, Universidade Federal Do Rio Grande Do Sul, 90000-Porto Alegre-RS, Brazil)

  • Rakesh K. Sarin

    (Fuqua School of Business, Duke University, Durham, North Carolina 27706)

Abstract
In this paper we propose a model for decision making under risk that is capable of predicting empirically observed preference patterns that have been found to be incompatible with the expected utility model. The model departs from the classical expected utility model by allowing utilities to depend on the lottery. The dependence of utilities on the lottery being evaluated is achieved by restricting the utility measure to a convenient parametric family of functions. The idea then is to use each lottery to determine a specific parameter value thus characterizing the utility function for each particular lottery. The expected value of this lottery dependent utility function provides the overall measure of preference. The model retains the properties of transitivity, stochastic dominance, and continuity. It also permits types of analyses, such as exploitation of basic attitudes toward risk through risk aversion properties, that have been found useful in decision theory. The primary use of our model is in descriptive or predictive research and applications. For some decision makers who wish to retain the preference patterns that are incompatible with the substitution principle, even after the implications of their choices are made transparent, our model could be of prescriptive use as well.

Suggested Citation

  • Joao L. Becker & Rakesh K. Sarin, 1987. "Lottery Dependent Utility," Management Science, INFORMS, vol. 33(11), pages 1367-1382, November.
    • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:11:p:1367-1382
    DOI: 10.1287/mnsc.33.11.1367
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.33.11.1367
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.33.11.1367?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    utility theory; preference theory;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:33:y:1987:i:11:p:1367-1382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.