On comparison of the principles of equivalent utility and its applications

An insurance premium principle is a way of assigning to every risk, represented by a non-negative bounded random variable on a given probability space, a non-negative real number. Such a number is interpreted as a premium for the insuring risk. In this paper the implicitly defined principle of equivalent utility is investigated. Using the properties of the quasideviation means, we characterize a comparison in the class of principles of equivalent utility under Rank-Dependent Utility, one of the important behavioral models of decision making under risk. Then we apply this result to establish characterizations of equality and positive homogeneity of the principle. Some further applications are discussed as well.

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BEHAVIORAL MODELS OF DECISION MAKING UNDER RISK AND/OR UNCERTAINTY WITH APPLICATION TO PUBLIC SECTORS

IFAC Proceedings Volumes ◽

10.3182/20070723-3-pl-2917.00005 ◽

2007 ◽

Vol 40 (9) ◽

pp. 27-38

Author(s):

Hiroyuki Tamura

Keyword(s):

Decision Making ◽

Behavioral Models ◽

Decision Making Under Risk ◽

Public Sectors

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Measuring Utility, Destabilizing EUT

Measuring Utility ◽

10.1093/oso/9780199372768.003.0017 ◽

2018 ◽

pp. 261-280

Author(s):

Ivan Moscati

Keyword(s):

Decision Making ◽

Behavioral Economics ◽

Expected Utility ◽

Utility Theory ◽

Expected Utility Theory ◽

Behavioral Models ◽

Decision Making Under Risk ◽

Utility Measurement ◽

Elicitation Methods ◽

Series Of Experiments

Chapter 16 shows how the validity of expected utility theory (EUT) was increasingly called into question between the mid-1960s and the mid-1970s and discusses how a series of experiments performed from 1974 to 1985 undermined the earlier confidence that EUT makes it possible to measure utility. Beginning in the mid-1960s, in a series of experiments seminal to the field later called behavioral economics, Sarah Lichtenstein, Paul Slovic, Amos Tversky, and others showed that decision patterns violating EUT are systematic. The new experimenters who engaged with the EUT-based measurement of utility from the mid-1970s, namely Uday Karmarkar, Richard de Neufville, Paul Schoemaker, and coauthors, showed that different elicitation methods to measure utility, which according to EUT should produce the same outcome, generate different measures. These findings contributed to destabilizing EUT, undermined the confidence in EUT-based utility measurement, and helped foster a blossoming of novel behavioral models of decision-making under risk.

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