The Pearson system of utility functions

Marco Li Calzi () and Annamaria Sorato ()

Game Theory and Information from EconWPA

Abstract: This paper describes a parametric family of utility functions for decision analysis. The parameterization is obtained by embedding the HARA class in a four-parameter representation for the risk aversion function. The resulting utility functions have only four shapes: concave, convex, S-shaped, and reverse S-shaped. This makes the family suited for both expected utility and prospect theory. We also describe an alternative technique to estimate the four parameters from elicited utilities, which is simpler and easier to implement than standard fitting by minimization of the mean quadratic error.

Keywords: coefficient of risk aversion; elicitation of preferences under risk; expected utility; HARA utility functions; Pearson system of distributions; prospect theory; probability weighting function; target- based decisions. (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2003-11-06
Note: Type of Document - pdf; prepared on Mac OsX; to print on A4 paper; pages: 18
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http://129.3.20.41/eps/game/papers/0311/0311002.pdf (application/pdf)

Related works:
Journal Article: The Pearson system of utility functions (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:0311002

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