Psychophysical interpretation for utility measures

Yuqing He

No 2011-50, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper explores utility measures by combining experiments with mathematical derivations in psychophysics paradigm. The analysis on ultimatum game experiment reveals an evidence for utility threshold and thus supports Bernoulli's utility logarithmic law. Both experimental results and theoretical derivations show that the logarithmic law is suitable for the description of commodity choice and the power law for risk choice. The further mathematical demonstration indicates the logarithmic law for utility scaling to be a Klein-Rubin utility function, a utility function well defined in microeconomics. Based on this, the experimental utility measure is connected with the econometric model Linear Expenditure System, and presents an experimental procedure for testing the utility maximization hypothesis, which will remove a long unsettled perplexity in a fundamental stone of economics since Gossen proposed it in 1854.

Keywords: Psychophysics; ultimatum game; utility function; logarithmic law; power law (search for similar items in EconPapers)
JEL-codes: A12 D01 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.econstor.eu/bitstream/10419/52680/1/675431093.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201150

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