On Equivalent Target-Oriented Formulations for Multiattribute Utility

Ilia Tsetlin () and Robert L. Winkler ()
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Ilia Tsetlin: INSEAD, 1 Ayer Rajah Avenue, Singapore 138676
Robert L. Winkler: Fuqua School of Business, Duke University, Durham, North Carolina 27708-0120

Decision Analysis, 2006, vol. 3, issue 2, 94-99

Abstract: Targets are used quite often as a management tool, and it has been argued that thinking in terms of targets may be more natural than thinking in terms of utilities. The standard expected-utility framework with a single attribute (such as money) and nondecreasing, bounded utility is equivalent to a target-oriented setting. A utility function, properly scaled, can be expressed as a cumulative distribution function (cdf) and related to the probability of meeting a target value. We consider whether the equivalence of the two approaches extends to the case of multiattribute utility. Our analysis shows that a multiattribute utility function cannot always be expressed in the form of a cumulative distribution function and, furthermore, cannot always be expressed in the form of a target-oriented utility function. However, in each case equivalence does hold for certain well-known classes of utility functions. In general, our results imply that although interpreting utility as a cdf and thinking about achieving targets works fine in the case of a single attribute, this approach should be used with caution in the multiattribute case, with cdf representations requiring more caution than target-oriented representations.

Keywords: target-oriented utility; utility and probability; multiattribute utility; multiattribute performance targets (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (7)

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