Abstract
A fundamental assumption of classical decision theory is that an individual’s attitude toward the risks involved in choices among uncertain alternatives can be captured by the shape of his utility function u(x) (e.g., see Pratt (1964)). A measurable value function v(x) can also be defined for this same individual over the same criterion to measure his strength of preference for incremental changes in the level of the criterion. The shape of this measurable value function can be interpreted as revealing the marginal value of additional units of the criterion. In general, there is no compelling reason to assume that u(x) = v(x) for the same decision maker, as discussed by Sarin (1982). If u(x) and v(x) are not the same, we argue that exploring the relationship between them may be a fruitful means of gaining insights regarding how risks effect the preferences, and ultimately the choice behavior, of individuals.
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Dyer, J.S. (1989). The Effects of Risk on Decision Making. In: Karpak, B., Zionts, S. (eds) Multiple Criteria Decision Making and Risk Analysis Using Microcomputers. NATO ASI Series, vol 56. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-74919-3_3
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DOI: https://doi.org/10.1007/978-3-642-74919-3_3
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