Measuring Utility

2018 ◽  
Author(s):  
Ivan Moscati
Keyword(s):  
Utility Theory ◽  
Measurement Theory ◽  
Expected Utility Theory ◽  
Utility Analysis ◽  
Von Neumann ◽  
Utility Measurement ◽  
Utility Concept ◽  
History Of ◽  
Methodological Problems ◽  
Marginal Revolution

The book reconstructs the history of utility measurement in economics, from the marginal revolution of the 1870s to the beginning of behavioral economics in the mid-1980s. Part I covers 1870–1910 and discusses the issue of utility measurement in the theories of Jevons, Menger, Walras, and other early utility theorists. Part II deals with the emergence of the notions of ordinal and cardinal utility during 1900–1945 and discusses two early attempts to give an empirical content to the notion of utility. Part III focuses on the 1945–1955 debate on utility measurement originated by von Neumann and Morgenstern’s expected utility theory (EUT). Part IV reconstructs the experimental attempts to measure the utility of money between 1950 and 1985 within the framework provided by EUT. The book does four main things. First, it reconstructs in detail economists’ ideas and discussions about utility measurement from 1870 to 1985 and their attempts to measure utility empirically. Second, it brings into focus the interplay among the evolution of utility analysis, economists’ ideas about utility measurement, and their conception of what measurement in general means. Third, it explores the hitherto underresearched relationships among the history of utility measurement in economics, the history of the measurement of sensations in psychology, and the history of measurement theory in general. Finally, it discusses some methodological problems related to utility measurement, such as the epistemological status of the utility concept and its measures. The book closes with a brief overview of post-1985 research trends in utility measurement.

The Expected Utility Theory and Measurement Theory of von Neumann and Morgenstern, 1944–1947

2018 ◽  
pp. 147-162 ◽  
Author(s):  
Ivan Moscati
Keyword(s):  
Decision Making ◽  
Utility Function ◽  
Expected Utility ◽  
Utility Theory ◽  
Theory Of Measurement ◽  
Measurement Theory ◽  
Expected Utility Theory ◽  
Economic Behavior ◽  
Utility Analysis ◽  
Von Neumann

Chapter 9 discusses the axiomatic version of expected utility theory (EUT), a theory of decision-making under risk, put forward by John von Neumann and Oskar Morgenstern in their book Theory of Games and Economic Behavior (1944). EUT was a changing factor in the history of utility measurement. In fact, while discussions of the measurability of utility before 1944 focused on the utility used to analyze decision-making between risk-free alternatives, after that year, discussions centered on the utility used to analyze decision-making between risky alternatives. In Theory of Games, the nature of the cardinal utility function u featured in von Neumann and Morgenstern’s EUT, and its relationship with the riskless utility function U of previous utility analysis remained ambiguous. Von Neumann and Morgenstern also put forward an axiomatic theory of measurement, which presents some similarities with Stanley Smith Stevens’s measurement theory but had no immediate impact on utility analysis.

Conventions, Operations, Predictions

2018 ◽  
pp. 193-214
Author(s):  
Ivan Moscati
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Choice Behavior ◽  
Expected Utility Theory ◽  
The Novel ◽  
Utility Analysis ◽  
Utility Measurement ◽  
The Third ◽  
Third Phase ◽  
Ordinal Utility

Chapter 12 analyzes the third phase of the debate on expected utility theory, from the end of 1952 to 1955. The issues concerning the nature of utility measurement gained an autonomous status in this phase. Milton Friedman, Leonard J. Savage, Robert Strotz, Armen Alchian, and Daniel Ellsberg argued that measuring utility consists of assigning numbers to objects by following a definite set of operations. While the particular way of assigning utility numbers to objects is largely arbitrary and conventional, the assigned numbers should allow economists to predict individuals’ choice behavior. This is similar to the operational conception advanced by psychologist Stanley Smith Stevens and definitively liberates utility measurement from its remaining ties with units and ratios. The novel view of measurement quickly became standard among mainstream utility theorists, and its success helps explain the peaceful cohabitation of cardinal and ordinal utility within utility analysis that began in the mid-1950s.

Prologue

2018 ◽  
pp. 1-12
Author(s):  
Ivan Moscati
Keyword(s):  
Social Welfare ◽  
Measurement Theory ◽  
Revealed Preference ◽  
Demand Analysis ◽  
Utility Analysis ◽  
Utility Measurement ◽  
Preference Theory ◽  
History Of ◽  
Econometric Approach ◽  
Revealed Preference Theory

The prologue outlines the main passages in the history of utility measurement in economics and presents the four main goals of the book. First, the book reconstructs in detail economists’ ideas and discussions about utility measurement from 1870 to 1985. Second, it brings into focus the interplay between the evolution of utility analysis, economists’ ideas about utility measurement, and their conception of what measurement in general means. Third, it explores the relationships between the history of utility measurement in economics, the history of the measurement of sensations in psychology, and the history of measurement theory in general. Finally, it discusses some epistemological problems related to utility measurement. Not discussed in the book are the measurement of social welfare, revealed preference theory, the post-1950 econometric approach to demand analysis, and the analysis of discrete choices initiated in the 1970s.

scholarly journals Economics versus Psychology. Risk, Uncertainty and the Expected Utility Theory

2017 ◽  
Vol 3 (1) ◽  
pp. 77
Author(s):  
Daniele Schilirò
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Risk And Uncertainty ◽  
Utility Analysis ◽  
Present Contribution ◽  
John Von Neumann ◽  
Von Neumann ◽  
Seminal Work ◽  
Milton Friedman

The present contribution examines the emergence of expected utility theory by John von Neumann and Oskar Morgenstern, the subjective the expected utility theory by Savage, and the problem of choice under risk and uncertainty, focusing in particular on the seminal work “The Utility Analysis of Choices involving Risk” (1948) by Milton Friedman and Leonard Savage to show how the evolution of the theory of choice has determined a separation of economics from psychology.

From Utility Measurement to the Representational Theory of Measurement

2018 ◽  
pp. 247-260
Author(s):  
Ivan Moscati
Keyword(s):  
Theory Of Measurement ◽  
Measurement Theory ◽  
Value Theory ◽  
Utility Analysis ◽  
Utility Measurement ◽  
History Of ◽  
Theory Project ◽  
The 1960S ◽  
Definition Of ◽  
Dominant Theory

Chapter 15 offers a conclusion to the history of measurement theory by reconstructing the origins of the representational theory of measurement in the early work of Patrick Suppes. In particular, the chapter shows that Suppes’s superseding of the unit-based understanding of measurement that he had embraced in the early 1950s, his endorsement of a liberal definition of measurement à la Stanley Smith Stevens in the mid-1950s, his conceiving of the project of an axiomatic underpinning of this notion of measurement in the late 1950s, and the realization of this project during the 1960s all have their origins in the utility analysis research he conducted from 1953 to 1957 within the Stanford Value Theory Project. The representational theory of measurement received full-fledged expression in Foundations of Measurement (1971), a book coauthored by Suppes, Duncan Luce, David Krantz, and Amos Tversky, which quickly became the dominant theory of measurement.

scholarly journals Cumulative Prospect Theory Version with Fuzzy Values of Outcome Estimates

Risks ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 72
Author(s):  
Oleg Uzhga-Rebrov ◽  
Peter Grabusts
Keyword(s):  
Prospect Theory ◽  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Cumulative Prospect Theory ◽  
Development History ◽  
Decisions Under Risk ◽  
History Of ◽  
Main Factors ◽  
Theoretical Foundations

Choosing solutions under risk and uncertainty requires the consideration of several factors. One of the main factors in choosing a solution is modeling the decision maker’s attitude to risk. The expected utility theory was the first approach that allowed to correctly model various nuances of the attitude to risk. Further research in this area has led to the emergence of even more effective approaches to solving this problem. Currently, the most developed theory of choice with respect to decisions under risk conditions is the cumulative prospect theory. This paper presents the development history of various extensions of the original expected utility theory, and the analysis of the main properties of the cumulative prospect theory. The main result of this work is a fuzzy version of the prospect theory, which allows handling fuzzy values of the decisions (prospects). The paper presents the theoretical foundations of the proposed version, an illustrative practical example, and conclusions based on the results obtained.

An Implementation of Expected Utility Theory in Decision Based Design

1998 ◽  
Author(s):  
Matthew Marston ◽  
Farrokh Mistree
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Design Science ◽  
Expected Utility Theory ◽  
Simple Design ◽  
Von Neumann ◽  
Decision Based Design ◽  
Mathematics And Physics ◽  
Science Of The Artificial ◽  
The Ideal

Abstract The development of a design science rests on the ideal that design is anchored in a set of fundamental axioms similar to the more ‘traditional’ sciences of mathematics and physics. However, the axioms upon which a design science is constructed must reflect that design is a science of the artificial. It is our contention that such axioms may exist in Decision-Based Design as those formulated by von-Neumann and Morgenstern for developing utilities under conditions of risk. In this paper we have a very narrow focus: evaluating a proposed framework for applying these axioms in the context of a simple design problem through the use of Monte Carlo simulation and expected utility theory.

scholarly journals Retrospectives: How Economists Came to Accept Expected Utility Theory: The Case of Samuelson and Savage

2016 ◽  
Vol 30 (2) ◽  
pp. 219-236 ◽  
Author(s):  
Ivan Moscati
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Axiomatic System ◽  
Individual Decision ◽  
Decision Making Under Risk ◽  
Von Neumann ◽  
Cowles Commission ◽  
Intellectual Journey ◽  
The University

Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Milton Friedman and Leonard Jimmie Savage, both based at the University of Chicago, and Jacob Marschak, a leading member of the Cowles Commission for Research in Economics. Paul Samuelson of MIT was initially a severe critic of expected utility theory. Between mid-April and early May 1950, Samuelson composed three papers in which he attacked von Neumann and Morgenstern's axiomatic system. By 1952, however, Samuelson had somewhat unexpectedly become a resolute supporter of the expected utility hypothesis. Why did Samuelson change his mind? Based on the correspondence between Samuelson, Savage, Marschak, and Friedman, this article reconstructs the joint intellectual journey that led Samuelson to accept expected utility theory and Savage to revise his motivations for supporting it.

scholarly journals ECONOMICS OF RANDOMNESS: BEHAVIORAL ASPECTS OF DECISION MAKING UNDER RISK

2017 ◽  
Vol 9 (2) ◽  
pp. 7-14
Author(s):  
Alexander Krasilnikov
Keyword(s):  
Decision Making ◽  
Risk Analysis ◽  
Uncertainty Analysis ◽  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Probabilistic Methods ◽  
Risk And Uncertainty ◽  
Decision Making Under Risk ◽  
History Of

The paper discusses evolution of the concept of risk in economics. History of probabilistic methods and approaches to risk and uncertainty analysis is considered. Expected utility theory, behavioral approaches, heuristic models and methods of neuroeconomics are analyzed. Author investigates stability of neoclassical program related to risk analysis and suggests further directions of development.

Sign in / Sign up

Export Citation Format

Share Document